With massive fiscal outlays set to supercharge the U.S. economy’s vaccine-enabled recovery, the Dow Jones and S&P 500 are enjoying an old-economy moment. Oil, steel, machinery and banking stocks caught fire as the $1.9-trillion American Rescue Plan moved toward passage this month.
Wall Street firms now predict the U.S.economy will surge 8% this year. The last time GDP growth cracked 5% came as Apple (AAPL) introduced the original Mac more than a quarter-century ago.
Now, as President Joe Biden gets ready to tee up another massive spending package focused on infrastructure, Wall Street is weighing what unleashed fiscal policy might mean for interest rates, tax rates and stock prices.
The implications are magnified by the Federal Reserve’s recent about-face on inflation, from standing on guard against it to trying to stoke it. The combination of easy fiscal and monetary policy may lift the Dow Jones and S&P 500 in the near term. Yet some on Wall Street think it could mean lower returns in the future.