FINSUM + Magnifi: Putnam Warns Fresh Stimulus is a Major Risk to Markets

(January 2021)


Despite all fears, markets had a fairly strong year in 2020. Why? The answer is pretty clear. Other than some general optimism about how large cap tech would perform during the pandemic, the real savior was huge government stimulus which infused massive amounts of cash into the economy and kept the US out of its worst recession since WWII. Fast forward to January 2021 and we have another major stimulus package on the horizon being pushed by Biden and the Democrats. While many investors might be elated at the prospect, Putnam Investments is warning investors that this could be a death knell for the market. The reason why is that a major new stimulus package would give the market a “sugar high” and potentially cause a melt-up that inflicts serious pain soon thereafter.

(New York)

FINSUM + Magnifi: The fundamental thesis here is that large cap tech stocks could be getting towards the final innings of a melt up, and that the last final surge could be sparked by a glut of consumer savings and a government stimulus package, both of which would push stocks to unreasonable valuations. On the whole, we must disagree. We believe further stimulus will work more to keep markets from their natural inclination towards a correction rather than cause a melt-up.

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