Don’t Sweat the Stimulus Delay, Morgan Stanley Sage Says

The stock market fell Tuesday on President Donald Trump’s calling off stimulus negotiations until after the election. With some signs that the economic recovery may be slowing, amid a worrisome rise of coronavirus infections, investors got spooked.

Not to worry, says Mike Wilson, Morgan Stanley’s chief US equity strategist. The economy, he told CNBC, “doesn’t need it for the next 30 days.” Giving just a 33% chance that a second stimulus package can be completed before the November 3 balloting, Wilson expressed confidence that one can arrive post-election.

The S&P 500 dipped 1.4% after Republican Trump tweeted that House Democrats weren’t bargaining “in good faith.” The president denounced Democratic Speaker Nancy Pelosi’s insistence on aid for what he termed poorly run, crime-ridden cities whose governments her party dominates.

The administration had offered a plan of $1.6 trillion, but Pelosi has been seeking $2.2 trillion. A flash point has been Democrats’ push for a renewal of $600 in extra weekly jobless benefits. The White House wants $400.

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Trump’s move came after Federal Reserve Chairman Jerome Powellwarned that insufficient government aid would lead to a weak recovery and create gratuitous hardship. “By contrast, the risks of overdoing it seem, for now, to be smaller,” he said. And Cleveland Fed President Loretta Mester said the end of stimulus talks will bring a “much slower” recovery than many expected.

While Wilson acknowledged that some economic data had “flattened,” he argued that the next economic rescue package will arrive soon enough after the election to avoid any real damage.

Certainly, there will be some “choppiness” in the market because of the delay and the uncertainty it provokes, he said. Stocks will see a lot of “volatility over the next three to four to five weeks,” he said. Nonetheless, he put the S&P’s “support level” at 3100, which is near the 200-day moving average. The index closed yesterday at 3360, down from its high in early September of 3526.

A onetime proponent of a V-shaped recovery, which is surely not the case to date, Wilson said he was surprised that the market progressed as quickly as it did until Labor Day, when it softened. But all should be fine. with some investor patience required, he went on. “It’s a matter of timing.”

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Tags: Congress, Donald Trump, Economy, Federal Reserve, Jerome Powell, Mike Wilson, Morgan Stanley, Nancy Pelosi, S&P 500, Stimulus, Stock Market

The Pension Benefit Guaranty Corporation (PBGC) said it will provide new flexibility for variable-rate premium filers to help mitigate the effects of the COVID-19 pandemic.

The PBGC said the move was necessary because the Coronavirus Aid, Relief, and Economic Security (CARES) Act, which allows minimum contributions required by the Employee Retirement Income Security Act (ERISA) that were due during 2020 to be paid on Jan. 1, 2021, did not provide any special rules related to PBGC premiums.

As a result of the action, a premium refund will be available to account for employer contributions received by the plan during the extended period provided by the CARES Act.

“As COVID-19 continues to affect workers, families, and job creators across the country, PBGC continues to look for opportunities to provide the relief they need,” PBGC Director Gordon Hartogensis said in a statement. “This relief will support theadministration’s efforts to continue driving economic recovery and helping those in need.”

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Under the new guidance, premium filings due on or after March 1, 2020, and before Jan. 1, 2021, the date by which “prior year” contributions must be received by the plan to be included in plan assets, will be extended to Jan. 1, 2021. That means the discounted value of the contributions received by the plan after the premium is filed will be included in the asset value used to determine the variable-rate premium. As a result, plans will be able to amend the premium filing to revise the originally reported asset value when all prior year contributions have been made, and receive the corresponding refund of variable-rate premiums.

As an example, the PBGC used a calendar year plan to demonstrate the various due dates as they relate to PBGC premium filings:

The premium for the 2020 plan year is due Oct. 15, 2020.
The due date for 2019 plan year contributions was extended to Jan. 1, 2021, from Sept. 15, 2020.
Absent the relief provided, and assuming the premium is filed on Oct. 15, the discounted value of contributions for the 2019 plan year received by the plan:
- On or before Oct. 15, 2020, are included in the asset value used to determine the 2020 variable-rate premium and
- After Oct. 15, 2020, are not included in the asset value used to determine the 2020 variable-rate premium.