The economy has gotten drunk on the massive fiscal high from the Covid stimulus packages. Trillions of dollars were spent/given away by the government to support the economy during the Covid lockdown. Take a look at the chart to see exactly how much the Federal deficit expanded under the current and previous administrations. Drunken sailors on leave!
But an increasing deficit is bullish for the stock market! The government pumps money into the economy and a lot of that cash goes into the stock market.
But the situation is very different for 2022.
Now, we are entering a fiscal cliff where fiscal policy is getting very tight!
Did you know that federal tax receipts are at all time highs? The rebound in the economy is driving huge boosts in taxes across the board. So that is money leaving the economy and going into government coffers. At the same time, spending is stable. It looks like the Build Back Better bill is not going to be built so there won't be any monster increases in federal spending. The chart shows the beginning of this cliff has already started.
The problem is that declining budget deficits are bearish for the stock market. Not wildly bearish but still bearish.
The best way to profit from these changes is to subscribe to my weekly video newsletter, Wall Street Winners. Go to WSW2021.com to learn more and subscribe.
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