Stimulus bill update: not everyone is convinced

If you’re looking for an update on the next stimulus bill, the good news is that lawmakers and the White House are working on it. White House economic adviser Larry Kudlow said on Monday that he could “conclusively” confirm that stimulus package 4 is on the way.

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However, not everyone is convinced that there will be a phase 4 stimulus package.

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Stimulus bill update: "conclusively"

We've been hearing updates on the next stimulus bill pretty much every day. Kudlow told Varney and Co. on Fox Business on Monday that he could "conclusively" confirm that the White House is working on a fourth stimulus package.

In his stimulus bill update, he also said they will try to make the package targeted and incentivize work and going back to work. He added that they also want to incentivize investments and that they want "a pro-growth package."

Kudlow said President Donald Trump has publicly supported a payroll tax holiday, "modest" back-to-work bonuses, an extension for the Paycheck Protection Program, reform for unemployment, targeted direct payments and a holiday from the capital gains tax.

Lack of stimulus would crash the stock market

Not everyone is convinced that lawmakers will be able to get along well enough to pass a phase four stimulus package. In an opinion piece for MarketWatch, Ash Alankar said Congress actually won't pass another stimulus bill. He also said that will crush the S&P 500 index.

The S&P has mostly been rallying since its low in March, which is a surprise given how many downward earnings revisions have been released. Earnings multiples have been expanding as investors assume that lawmakers will pass a phase four stimulus package.

Most experts agree that the unprecedented stimulus efforts are what has been driving Wall Street. Alankar believes investors have been too optimistic in pricing in further stimulus and that the political climate on Capitol Hill is too "rancorous" for lawmakers to be able to negotiate a stimulus bill successfully.

He explained that the fiscal stimulus measures taken so far have been transient rather than permanent. Based on empirical data, it's estimated that fiscal stimulus has a multiplier of 0.4 to 1.2, which means that every dollar spent translates to between 40 cents and $1.20 in economic activity. Short-term measures like those that have been passed so far have a lower multiplier effect.

He added that history has shown that the benefits of fiscal stimulus mostly disappear after two quarters. He believes stock prices suggest investors expect the phase four stimulus package to have a long-lasting impact. Without longer-lasting provisions, he believes the stock market will crash.