In a blow to President Joe Biden’s “Build Back Better” agenda Monday morning, West Virginia Sen. Joe Manchin — from my home state — announced his opposition to the social spending bill in its current form.
That set off a bevy of reactionary, bearish headlines. Most notably, the statement caused Goldman Sachs to lower its 2022 GDP forecast from 3% to 2% for the first quarter, and cut Q2 from 3.5% to 3%, and Q3 from 3% to 2.75%.
If you’re a professional economist and the outcome of the “Build Back Better” Senate vote is so integral to your Q1 2022 GDP outlook that its absence would pull it down by a whole percentage point…
Maybe consider lowering your forecast a little earlier than 11 DAYS BEFORE Q1.
For what it’s worth, my Q1 GDP forecast hasn’t changed at all. It was about 4% in October, it was about 4% in November, and it’s about 4% now.
But I wasn’t dumb enough to assume this bill would get passed.
I’ve mentioned my personal bias toward Manchin before… They were my neighbors growing up, his wife was my teacher in several classes and his son is a close personal friend.
What can I say, I like the guy.
But you don’t have to know Manchin personally to know that he thought the Build Back Better bill was too expensive… He said so in July.
You don’t have to know him personally to know that he wanted details on how the money would be spent… He said that in July, too.
You don’t have to know him personally to know he was probably voting “no”… He said as much in August.
And you don’t have to know him personally to know that $1.5 trillion was his “line in the sand…” He proposed just such a deal to Senate Majority Leader Chuck Schumer in September.
But apparently, Mr. Goldman and Mr. Sachs aren’t paying attention… Or perhaps they can’t read.
But it doesn’t matter to the market whether I get my GDP forecast right or not. Giant banks missing like that — government spending is part of the GDP calculation — can move the needle.
And they sure did Monday, with the S&P 500, Nasdaq and Russell 2000 all finishing down over 1%.
Naturally, CNBC was all over it… Well, that and Cramer having COVID-19.
And, apparently, the assumption this bill was going to pass was the only thing holding up electric vehicle stocks…
‘Build Back Better’ Senate Vote and Omicron Take Headlines
By the end of the day, we had already moved full circle back to the threat of the omicron variant.
Now, I’ve said before that I don’t see omicron as a big threat to markets… I still think that’s the case.
But my opinion, right or wrong, doesn’t mean governments won’t overreact. In Europe, for instance, they’ve already installed new restrictions starting in the Netherlands and Denmark, and eventually spreading to other areas of the region…
I understand how that could be worrisome to foreign investors, but that’s not indicative of what the U.S. will do.
In fact, the most liberal mayor in the country, New York City’s Bill DeBlasio, has already rejected the notion of more lockdowns for the Big Apple.
Source: NY Post Twitter
He’s right, too… It’s not March 2020.
By now, most people in the U.S. are either fully vaccinated, boosted or have already had COVID-19.
And if the most liberal mayor in the most liberal city is on team “stay open,” then we’re staying open.
So while the media clearly thinks the omicron variant is a better headline than no-go-Joe, the market doesn’t know what to make of a decrease in government spending it didn’t see coming.
I’m still optimistic, of course, and futures looked like they were clawing back in after market hours on Monday.
But if you’re out there buying dips like we should, keeping your sizing small, and erring toward larger-cap companies…
I’ll be back with an updated watchlist that reflects Goldman Sachs’s reaction to the “Build Back Better” Senate vote.
All the best,