More funding for the CARES Act

by: , Managing Director, Economist, and Portfolio Manager, New York Life Investment Management; Multi-Asset Solutions team, Multi-Asset Solutions team, New York Life Investments

A unanimous vote from the Senate approved roughly $500 billion in additional funds

After only two weeks of operation, the Small Business Administrations (SBA) paycheck protection program (PPP) has extended all its available loans to small businesses in dire need of cash.

The program is an important pillar of support for small businesses facing a severe cash flow shortfall during the crisis, and supplemental funding was therefore an urgent issue for Congress. The magnitude of the demand for loans shows the depth of the cash flow shortfall.  Additional funds were voted to be allocated in the following manner:

  • $320 billion in additional SBA PPP loans (including reserving about $100 billion for small lenders);
  • $60 billion for SBA disaster relief loans;
  • $75 billion for health care providers;
  • $25 billion for additional Coronavirus testing.

Congress addresses some shortfalls in the program

There were several sticking points throughout negotiations between Democrats and Republicans, most importantly the role of federal agencies and funding for Coronavirus testing. The allotted $25B for testing will help step up the pace of testing at a critical time, given the announced 3-phase plan for reopening parts of the economy.

Another sticking point was issues related to both funding as well as the efficacy and fairness of the PPP itself. The swift move by Congress to provide much needled stimulus in round one created a program that was badly needed, but also insufficiently targeted and funded.

  • The initial allotment of $349 billion was insufficient given the severity of the cash flow shortfall. This supplemental funding is helpful, but we view it as likely that more could be needed if the lockdowns continue.
  • Unequal access across regions, and signs of better access for small businesses with good banking relationships, were concerns that have now been addressed in the Senate’s bill. The new bill earmarks $125 billion in loans/grants for businesses without access to large financial institutions.
  • Additionally, some hotels and restaurants were disqualified for these loans because of their affiliation to larger investment companies. Recent updates prevent hotels and restaurants from being disqualified from loans/grants based on such considerations – a helpful step, as these industries are the most severely impacted by distancing.

The global fiscal policy response is sizable

We are tracking the fiscal response to the COVID-19 crisis across the world’s most important economies. In recent weeks, significant fiscal measures have been announced. At the same time, most countries have seen a slowdown in COVID-19 infection.  This is good news.  Still, the tendency for the virus to spread to several Emerging Markets which have less capacity for a fiscal response is a worrisome trend that bears watching.

Helpful steps, but questions remain

While the headline numbers for the fiscal response across the largest economies are now historically large, we should remember that the short-term hit to the economy and cash flows due to lockdown measures is also very large. Specifically, while the new package will add  more than $300 billion in additional funding for the PPP, some banks have warned that the funding could be committed in as little as two days. We therefore doubt that this will be the last measure from Congress.

Discussions on a “phase V” deal including further support for state and local governments as well as infrastructure investments remain in early stages. We believe that they are unlikely to gain significant traction until the lockdown is lifted and Congress can reconvene in Washington.

This material represents an assessment of the market environment as at a specific date; is subject to change; and is not intended to be a forecast of future events or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice regarding the funds or any issuer or security in particular.

The strategies discussed are strictly for illustrative and educational purposes and are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. There is no guarantee that any strategies discussed will be effective.

This material contains general information only and does not take into account an individual’s financial circumstances. This information should not be relied upon as a primary basis for an investment decision. Rather, an assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial advisor before making an investment decision.

“New York Life Investments” is both a service mark, and the common trade name, of certain investment advisors affiliated with New York Life Insurance Company.  Securities distributed by NYLIFE Distributors LLC, 30 Hudson  St. Jersey City, NJ 07302.


Poul Kristensen, CFA

Managing Director, Economist, and Portfolio Manager, New York Life Investment Management

Poul Kristensen, CFA is Managing Director, Economist, and Portfolio Manager with New York Life Investment Management’s Multi Asset Solutions (MAS) team

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Multi-Asset Solutions team

Multi-Asset Solutions team, New York Life Investments

Multi-Asset Solutions (MAS) is New York Life investments’ specialist in multi-asset investing.The team offers multi asset strategies, market intelligence, and customized solutions to its strategic partners. Managed assets include MainStay funds, strategic partnerships and customized solutions with third parties. Investment services include market insights, risk analysis, and financial education. Strategic partnerships are designed to meet bespoke investment objectives, such as income generation or inflation protection, through holistic solutions.

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