08Jul
Now the budget bill passed, and it will have an immediate incremental growth impact on the economy. The full expensing provision (retroactive to the start of the year) will incentivize companies to research, develop and build now.
Getting fiscal fuel, which should close to a resumption of the interest rate easing cycle (monetary fuel).Previous week Mr.Trump explicitly called for Mr.Powell to resign. Today,Mr. Kevin Warsh, on Mr.Trump's short list of candidates to replace Mr.Powell, was on TV calling for regime change at the Fed.
Add to this;Previous week, the risk of dysfunction in the Treasury market has been materially lowered now that the Fed has signaled that it will relax bank regulatory constraints,And perhaps the stars are aligning for a risk-on market environment, except for the overhang of the July 9th (self-imposed) tariff deadline. But that self-imposed deadline has now been extended to August 1,2025. With all of this, let's revisit this small Cap vs. Big Tech chart we observed back in my June 23rd,2025 note.
Remember, when Mr.Jerome Powell signaled the end of the tightening cycle in October of 2023 (a dovish pivot), both the Russell (small caps) and the Nasdaq (led by big tech) rose nearly 50% over the next 13 months.
Then the Russell topped first, in late November last year, on the "reflation" fears of Trump policies, and the potential for a shallow easing cycle. We've since had the Fed pause or Hiatus.
Which had the tariff-fear induced broad sell-off across stocks. And now had a full V-shaped recovery for the Nasdaq and the S&P 500 (back to new record highs).
And the Russell is still well below its record highs -- it has dramatically underperformed since the Fed started signaling a pause of the easing cycle.
if you believe the Fed and Mr.Jerome Powell are feeling the heat, and the resumption of the easing cycle is coming, then the performance gap in the chart above should start closing aggressively.
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