On Thursday (October 8), investors in both equities and cryptoassets seem to be anxiously waiting to see if the Trump administration, the House Democrats, and the Senate Republicans can reach agreement on some kind of fiscal stimulus package before the U.S. presidential election on November 3.
On Wednesday (October 7), the Dow Jones Industrial Average had its best day since July 14, gaining 530.7 points (or 1.9%), while the S&P 500 and the Nasdaq Composite advanced 1.74% and 1.88% respectively.
It seemed that traders/investors in U.S. stocks were feeling confident that there would be some of fiscal stimulus deal before the election (even if it is for a much smaller stimulus package than the $2.2 trillion package the Democrats are hoping for, and which the House approved last Thursday), for example a bill that helps the struggling airline industry or a bill that only mentions a second $1200 stimulus check for individuals.
This optimism was based on House Speaker Nancy Pelosi’s promise of federal aid for U.S. airlines and also on what President Trump was saying on Twitter before the US. stock market opened yesterday:
Although many people in the crypto space were expecting Bitcoin and other cryptoassets to have a big bounce — since Bitcoin has been behaving mostly like a risk-on asset throughout this pandemic — just like U.S. stocks, that did not really happen. Perhaps, this means that investors and traders in the crypto space are behaving in a more rational way and waiting to see some kind of concrete stimulus deal — rather than just comments about the possibility of a deal — before putting more money into the crypto market.
Currently (as of 08:02 EDT or 12:02 UTC on October 8), as you can see in the 24-hour BTC-USD price chart below from CryptoCompare, Bitcoin is trading around $10,606, down 0.2% in the past 24-hour period.
Nancy Davis, founder and portfolio manager at Quadratic Capital told CNBC:
“Even though there is uncertainty now about the fiscal stimulus negotiations, regardless of who wins the election, we are likely to have additional fiscal stimulus.
“With the uncertainty, I think it’s important for investors to have a diversified portfolio, with investments that are uncorrelated to each other. We should expect more uncertainty going forward.”
And Thomas Lee, Co-Founder, Managing Partner, and Head of Research at Fundstrat Global Advisors, told CNBC:
“Stimulus isn’t not going to happen. It’s just that the timing is not that clear. And that’s a situation where I think the market is going to be able to look through it ultimately. It’s not like one side or the other doesn’t want stimulus. The sticking point is the ultimate magnitude….
“I think the economy is in a rough spot right now because there are still a lot of restrictions, and I think people are pretty fearful of going out, so it’s important to get some sort of bridge until the economy comes back…
“It would also not be helpful if it took until next year. First quarter would be really terrifying. I think equities aren’t comfortable in the short term with uncertainty. That’s why the election is creating a lot of turmoil as well.”
The short-term fate of Bitcoin seems to depend on more stimulus. However, it seems unlikely that we will see a second major fiscal stimulus package before next month’s election. Why? Because that would help the U.S. economy before the election and usually whenever the U.S. economy seems to be doing well, the incumbent president wins, and so it would make sense (politically) for Speaker Pelosi to not want to see the U.S. stock market to receive a major boost (in the form of a large stimulus package) in the run-up to the election.
Currently, the polls on average seem to have Biden around 10 points ahead of Trump, and if Biden wins (as it seems more and more likely each day) and the Democrats get control of both chambers of the U.S. Congress, then the Democrats will probably want to pass an even larger fiscal stimulus package, which is something that both the U.S. stock market and the crypto market will cheer.
The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.