Trump going after the Fed is bullish for risk assets, says Canton Fitzgerald's Eric Johnston

The current market reaction to potential changes at the Federal Reserve is described as muted, yet the speaker views the situation as highly bullish for risk assets like equities and crypto. This optimism stems from the belief that a shift towards more Trump appointees on the Fed board would incentivize a focus on a strong economy, which in turn benefits risk assets by favoring lower interest rates.

Federal Reserve Independence and Market Impact

• Muted Market Reaction: Despite concerns about Fed independence and deviations from historical norms, the market reaction to potential Fed changes is perceived as subdued. [00:33]
• Bullish for Risk Assets: The situation is seen as a positive development for risk assets like equities and cryptocurrencies. [00:33]
• Trump Appointee Influence: A potential shift towards a Fed board dominated by Trump appointees is viewed as bullish for risk assets, as these appointees are expected to prioritize a strong economy. [00:39]
• Incentive for Strong Economy: A Trump-appointee-led Fed is expected to be incentivized to ensure a robust economy for the next four years. [00:41]
• Cheap Money Advantage: Risk assets generally perform well in an environment of cheap money, which is anticipated with a more accommodative Fed. [00:43]
• Steepening Yield Curve Concerns: A market concern is whether the yield curve will steepen, with potential for short-term rates to fall while long-term rates rise due to inflation concerns. [00:47]
• Controlling the Long End: The speaker believes that both the Treasury and the Fed possess tools to manage and potentially lower long-term rates, which aligns with the administration's desire for lower mortgage rates. [00:57]
• Towards a Rate Cut Cycle: The current scenario is viewed as a step closer to an interest rate cut cycle. [01:06]
• Fed's Long-Term vs. Short-Term Focus: While the Fed traditionally prioritizes long-term economic health (balancing inflation and employment over 5-10-15 years), the potential shift suggests a greater emphasis on short-term economic strength. [01:15]
• Secular Trends and Inflation: New Fed members may believe that secular trends like AI will ultimately reduce inflation, making them more inclined to run a "hotter" economy. [01:21]

Sector and Asset Opportunities

• Homebuilders and Small Caps: The speaker expresses a preference for homebuilders and small-cap stocks, anticipating strong performance in the current environment. [01:28]
• Benefits of Lower Rates: Lower interest rates are expected to benefit companies with more debt and those considered more speculative or of lower quality, as it encourages risk-taking. [01:31]
• Strong Economic Outlook for 2026: The economic outlook for 2026 is projected to be very strong, with factors like lapping higher prices due to tariffs and increased domestic and foreign investment contributing to this. [01:40]
• Rising Earnings Estimates: Earnings estimates for both the S&P 500 and small caps are showing an upward trend, which is seen as a powerful indicator, especially for small caps that have underperformed for years. [02:05]

Bitcoin Outlook

• Bullish on Bitcoin: The speaker has been bullish on Bitcoin for some time, expecting its price to continue rising. [02:17]
• Supporting Factors for Bitcoin: Several factors are contributing to this positive outlook for Bitcoin, including:
  • Cheaper money [02:24]
  • Increased money supply [02:24]
  • Institutionalization [02:24]
  • Passage of supportive legislation [02:24]
  • Support from the administration [02:24]

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