Wall Street economists are getting fed up with the government’s inability to agree upon more stimulus
Morgan Stanley, Bank of America, Goldman Sachs, and JPMorgan have all lowered their fourth-quarter growth estimates on waning hopes for new aid.
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- Wall Street is finally accepting diminished chances for a near-term stimulus deal, and firms' latest GDP forecasts reflect growing pessimism toward the economy's chances without fresh aid.
- Goldman Sachs halved its GDP growth forecast to 3% on Wednesday. JPMorgan followed suit one day after, cutting its estimate to 2.5% from 3.5%.
- Morgan Stanley and Bank of America trimmed their expectations earlier in the month. All four of the Wall Street giants cited an absence of new fiscal relief for their gloomier outlooks.
- Still, some hope for a spending package emerged Thursday. Treasury Secretary Steven Mnuchin said new stimulus is "still needed," and top Democrats rolled out a new $2.4 trillion proposal that could be voted on as early as next week.
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With the US economic recovery slowing and stimulus still stuck in a legislative deadlock, Wall Street is finally throwing in the towel.
Major banks recently lowered their forecasts for near-term economic growth, accepting that the fiscal aid their previous estimates relied on is unlikely to arrive. Firms' economists held out through stalled negotiations and major disagreements over the month expecting Democrats and Republicans to eventually meet in the middle. Yet recent events all but entirely dashed hopes for a spending package.
The death of Justice Ruth Bader Ginsburg shocked the country and immediately shifted Republicans' focus to confirming a replacement on the Supreme Court. Legislators on both sides of the aisle also rushed to compromise on a stopgap spending measure to avoid an October 1 shutdown deadline. In a matter of days, priorities pivoted from economic relief spending to other pressing matters.
In a spate of notes adjusting gross domestic product projections, banks unanimously cited the absence of stimulus for their more bearish outlooks.
Bank of America was among the first to officially lower its fourth-quarter estimate. The firm's forecast fell to 3% from 5% in a September 11 note, with economists deeming the stimulus deadlock as a "speed bump" for the nation's rebound.
Morgan Stanley followed suit days later, removing proactive stimulus from its base-case scenario. The bank previously estimated that a package including $1.5 trillion to $2 trillion in relief spending would bring growth back to its pre-pandemic levels by the second quarter of 2021.
Failure to pass such a deal pushes that timing back to the end of next year, the bank said in a mid-September note. Morgan Stanley's 9.3% growth expectation remains one of the highest among major banks, according to data compiled by Bloomberg.
Goldman Sachs and JPMorgan are the latest Wall Street giants to accept gloomier projections. The former halved its fourth-quarter growth estimate to 3% on Wednesday. The lack of stimulus will most heavily weigh on households' disposable income and drag consumer spending lower through the end of the year, the team led by Jan Hatzius wrote.
JPMorgan's economists trimmed the firm's fourth-quarter projection to 2.5% from 3.5% on Thursday. An inability to pass new aid will prompt a contraction in disposable income heading into 2021, the bank said.
Waning odds of a new stimulus measure arrive as economic indicators warn of a stagnating recovery. New US jobless claims unexpectedly jumped to 870,000 for the week ended September 20, landing well above the consensus estimate of 840,000 filings. August retail sales similarly missed expectations after climbing only 0.6% through the month. With CARES Act funds largely exhausted, the country's economic bounce-back is set to head into the new year with little support.
Still, some hope for a near-term deal emerged Thursday. Treasury Secretary Steven Mnuchin told the Senate Banking Committee he and House Speaker Nancy Pelosi continue to negotiate on new aid, adding that additional stimulus is "still needed."
At the same time, Pelosi and top Democrats rolled out a new $2.4 trillion stimulus proposal that would lift the economy through aid for families, airlines, and restaurants. The sum sits above the $1.5 trillion target the White House previously set as its maximum and below Democrats' initial plans for a $3.4 trillion bill. A vote on the measure could take place as soon as next week.
Passage of a new stimulus package would likely invigorate the stock market and revive some of Wall Street's faltering optimism. Yet time is of the essence. The CARES Act's economic impact was somewhat delayed as Americans waited for economic relief checks to arrive and businesses applied for Paycheck Protection Program loans. Even if a multitrillion-dollar measure is passed before October, fourth-quarter growth may be doomed to match banks' newly weakened forecasts.
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