At a time when the two-year campaign is coming to an end, Wall Street is gradually returning to its true focus, which is, of course, the Federal Reserve.

As the possibility of Democrats sweeping the White House and both houses of Congress fades away and the possibility of a massive fiscal stimulus package diminishes, experts now believe that the most important force determining the direction of the US economy and the stock and bond markets is still the Federal Reserve. The US central bank has made a clear commitment that interest rates will remain near zero for many years to come, and they have adopted a new way of targeting inflation and found new means of stimulus.

Experts say the Fed will keep its promise to ensure market growth and economic growth as much as possible, and to that end, they will also try to accomplish at least some of the tasks that the government has failed to accomplish. Clearly, these experts are not worried that Powell and his colleagues may have run out of ammunition in the arsenal.

"given that fiscal policy may not be as generous as imagined, the pressure on the Fed has increased, and they have to do more. "Chief Economist of JefferyMark Voska.(Aneta Markowska) wrote in the research report, "We believe that the Fed has a good chance of expanding the maturity range of their Treasury purchases. "

She explained that the biggest possible threats to the economy previously mentioned by the Fed have all become a reality, such as the absence of fiscal stimulus (at least for now), the increase in COVID-19 cases and the tightening of the financial environment.

"the financial environment has deteriorated significantly in the last week, and the situation is now the only one seen since early July. "together with other risks, this creates a very urgent situation that requires the Fed to provide more stimulus," Mark Voska pointed out in a research report in late October. "

Dalby, global equity strategist at Jeffery(SeanDarby) wrote in his research report that splitting the government into reality may limit the size of the future stimulus package, but even so, the stimulus package is good for the stock market. He upgraded his technology stock rating to "moderately bullish", on a par with several other sectors, but still less than the overall bullish industrial and raw materials sectors.

"US stocks tend to perform well during political stagnation cycles, exceeding the global level as a whole," he said. "Heifer, chief investment officer of wealth management at UBS(Mark Haefele) said that even if the stimulus was not as expected, he still expected the stock market to benefit from the economic recovery and the complete end of the epidemic after the introduction of the vaccine in 2021.

However, he still stressed that the Fed will still play a key role. "We must also take into account the possibility that the Fed, after judging that a large fiscal stimulus package is difficult to put in place, will feel that they may need to step up their policy. "

Heifer's current judgment is that the future fiscal stimulus will be about $1 trillion, twice as large as the current Republican initiative, which is expected to benefit medium-sized stocks. He added that other countries will also do more to stimulate their economies, and there will be corresponding opportunities in the market, such as the UK stock market, emerging market value stocks, euro zone small and medium-sized stocks and so on. We believe that the next pillar of the stock market rally is more likely to come from areas where the market is more cyclical. "

Leavitt, global market strategist at Invesco(Brian Levitt) also believes that if the economic recovery is slow, the Fed will not consider raising interest rates for a longer period of time. "the economic recovery under the divided government between 2011 and 2015 may be an appropriate reference. It is worth pointing out that the performance of the market during that period was remarkable. "

However, not everyone believes that the economic recovery will move on a slow but steady track.Edwards Lifesciences Corp, strategist at Societe Generale(Albert Edwards) also believes that the Fed intervened to ensure market liquidity, and the market is realizing this. 'for investors, there's nothing else that really matters,'he said.

"the markets for stocks (especially technology stocks) and bonds (especially 30-year Treasuries) are aware that the Fed will be forced to get involved and come up with more stimulus measures, even if it doesn't want to. "

Although bond market investors had bet on the ultimate rise in inflation before the election, Edwards Lifesciences Corp believes that that day is actually very early. "during the recession, it was massive fiscal expansion that supported the US economy and contributed to a huge increase in the private sector savings rate. However, the scale of this stimulus is now under threat. "

He said this is in line with what he calls the "glacier theory", which holds that the United States and Europe will move towards deflation, causing long-term bond yields to plummet and stock markets to collapse.