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July 28, 2020

What Could the HEALS Act Do to the Market?

Frank Cabibi

Amid vaccine hopes and earnings, concerns lie ahead on the new stimulus bill called the HEALS Act. Markets sold off today as the announcement of the new bill is being discussed. The SPY at $322.56, down 0.19% at the time of writing this. Now questions remain on whether the bill will pass through or if the second round of checks will be stalled in August.

https://tradingeconomics.com/united-states/government-debt

Members of Congress are hesitant to accumulate more debt as we have mounted somewhere in between $26-27 trillion as of June 2020.

HEALS Act

After doing some research on what is in the HEALS Act on the Tax Foundation website, here are a few things that I found:
- $1,200 every month to single taxpayers who make under $75,000 adjusted gross income
- Expanding the Payment Protection Program (PPP) with another $190 billion
- Helping small businesses with up to $2 million loan for payroll costs
- $105 billion for students to return to school

If passed, the second round of stimulus will mount another $1 trillion to the existing $2 trillion from the CARES Act. The goal of the program is to instill a short term recovery will longer term growth in the economy. The additional $600 a week provided by the CARES Act expires this week and would not continue should the bill get passed. Instead, the money would cut to $200 a week which has made the Democrats in Congress unhappy. The second round of stimulus was supposed to be more of a 'mild' version of the first with the expectation that the economy would have been closer to a full recovery by now.

But, clearly that's not the case.

https://www.bls.gov/charts/employment-situation/civilian-unemployment-rate.htm

Unemployment rate as of June 2020 still stands staggeringly high at 11% unemployed, higher than the rates from the financial crisis in 2008. Small businesses are hurting the most as benefits are appearing to shrink. One thing to consider is that the relief bill may not be passed in time. The cure for coronavirus is still in the early stages of developing, although Pfizer announced it's second out of three phases in the clinical trial. Relief funds will surely run out before the end of the week, and a new round needs to be implemented. Some reports say that Democrats in the Senate are likely going to vote against it as it does not contain their suggested amount of at least $3 trillion.

What I think

There is not much time left to negotiate which means Americans' financial security relies on the stubbornness or cooperation of either party. In my opinion, it's likely that some form of the new HEALS Act will get passed within the first week of August or it's citizens will blame the party that postpones it. With both sides in agreement on several issues, it's only a matter of how much money they agree to spend. Any delay could cause more days in the red for the major indices. If the bill is passed on time, we could see some more of that bullish rally from the past couple months.

Here are some trade setups we like based on certain conditions:

If HEALS passes on time:
We see some potential long positions on the US30 anywhere in that support zone ($26,400s) on the daily chart. RSI not showing signs of being overbought yet with room to run.

If a delay is announced:
On the 4H chart, US30 has resistance on the falling trend line ($26,845) for possible shorts. Stronger support would lie around the 200 Day Moving Average.

Featured Pic: https://www.senate.gov/resources/images/col2_senatefloor.jpg


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Disclaimer:

Please note that this email is my personal opinion only. I am not a licensed financial advisor, and any information shared or discussed is not to be construed as investment advice. Trading and investing involves a degree of risk, and is not suitable to all investors. Please consult with your financial advisor before making any sort of investment decisions.

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