Market Overview

Wednesday's Market Minute: Fed Fulcrum Is The Baseline Without Fiscal Policy

Wednesday's Market Minute: Fed Fulcrum Is The Baseline Without Fiscal Policy

The question investors are trying to assess right now is how much stimulus has been priced into the market? Yesterday's limited drop in the market after the President's tweet suggests maybe not as much as you might think. But then it seems clearly we're getting something regardless of who wins in November. Either way, we should consider what market dynamics look like in the absence of new aid.

Last year as the Fed wound down its interest rate reversals (cuts), I outlined a blueprint for action called the Fed Fulcrum, which posited that declines in major asset classes would correlate to their dependency on a "lower forever" narrative that had become consensus in 2019, but fell short of reality: bitcoin needs the most extreme outcome of Central Bank policy (negative rates, debasement of currencies), gold the next most (currency wars, runaway inflation), Treasury bonds (no more capital appreciation), and then stocks (tech valuations enjoying the Fed model bull case). Each would reverse an appropriate amount of their gains once they lost the Fed as a catalyst.

The COVID crisis didn't allow this to play out fully, but with Powell now firmly on hold and no immediate fiscal support happening, I suspect this will serve as a baseline for thinking about what's next. Since their respective highs YTD, bitcoin is down 13%, gold 8%, long bonds 7%, and stocks 4% -- the order the Fulcrum suggests. Fiscal policy could change this blueprint quite a bit, in myriad ways. Another broad helicopter drop of cash would likely allow equity valuations to roam higher again. A targeted band-aid for troubled areas would be distinctly more supportive for non-tech stocks, which is not obviously positive for the market overall, and could actually accelerate the Fulcrum-driven declines if truly growth-positive.

Then there is another scenario, in which huge fiscal spending that is not obviously growth-positive doesn't help stocks, but strengthens the case for gold and bitcoin. The crucial question to investors will be whether the fiscal impulse is strong enough to offset the central bank unwind.

Photo by M. B. M. on Unsplash


Related Articles

View Comments and Join the Discussion!

Posted-In: Bitcoin TD AmeritradeCryptocurrency News Economics Federal Reserve Markets

Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at