Advisor Insights Market Commentary Market News

Spotlight on Stimulus

Written by: Benjamin Bimson CIMA®, CMT® / CIO, BCJ Financial Group

There is no doubt an attention shortage on the current Presidential election. The details of which candidate will win has increasingly been sidelined by the one pressure that is affecting both sides of the isle – the demand for more fiscal relief.

It can be incredibly difficult to isolate strong political preferences from the impact of yet another large and meaningful fiscal relief package. To date, Corona Preparedness, Families First, Coronavirus Aid, Relief and Economic Security (CARES), PPP/Health Care Enhancement, and the Loan to airline industry has reached approximately $7.604 Trillion. Whether the next chapter yields an additional $1.8 or $2.2 Trillion dollars is less important than the fact that it will be huge. Combined with all the actions taken by the Fed, we have not seen this level of stimulus to the economy since the 1940s.

When fiscal and monetary policy are supporting the economy, economists refer to something we call Money Supply. This is the amount of money that is in the system. Specifically, M2 Money Supply is a technical measure of money supply that includes cash, checking deposits, and assets that are easily converted to cash. When we look at what tends to happen when this type of stimulus goes into the economy, we notice that it tends to inflate asset prices which have direct impact the stock market along with other capital assets.

Extreme nature of the coronavirus economic crisis and the amount of monetary and fiscal response. Chart Source: Ned Davis Research Group

It can be tempting to try and see all of the risks of taking on extreme debt to fund this stimulus, but this chart clearly illustrates that after each massive stimulus, the stock market has tended to grow as a response to the dollars in the economy.

While there has been quite a bit of anxiety about politics, one risk seems to be diminishing – risk that government support of asset prices is likely to continue regardless of the presidential election. This is positive news for investors of all political beliefs.

From a stock market prospective, the last quarter of 2020 is proving likely to be more bullish for stock investors than some had thought earlier this year. It has everything to do with extremely accommodative fiscal and monetary policy which is very stimulating to the stock market. Volatility can still be strong and the political emotions are likely to be extreme for whichever side loses the presidential election, but economically, support is so great that it is dangerous to try and fight against the tide of stimulus.

Pre-Election Webinar – Get the Insights

To take a peek into the economy and investment environments, we are hosting an upcoming Live Market Update featuring speaker Ed Clissold, CFA from Ned Davis Research. We encourage all readers to register for this informative 30-minute pre-election webinar!

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Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. Information presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein.  BCJ FG 20-121

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