The Stimulus Wave Nobody Saw Coming
Robert Ross|June 3, 2025
We’re seeing a full-blown risk-on rally…
From large caps to small caps and crypto…
Breadth is improving.
Volatility is falling.
Speculative names are running.
And capital is flowing like it’s 2021 again.
Unfortunately, bond yields are rising too…
The 10-year Treasury just ticked up to 4.6% – a sharp move higher from the 4% print we saw just a month ago.
But context matters.
The 10-year was sitting right around 4.5% this same time last year.
Yields haven’t entered some brave new world. They’re simply repricing based on a flood of new supply of bonds.
That’s the real story: a “stimulus wave” from the U.S. government is now crashing ashore…
And it has major implications for stocks and crypto.
Expanding the Big Beautiful Deficit
There are three powerful forces driving this rally.
First is the “Big Beautiful Bill.”
Instead of the promised fiscal restraint, we’re getting one of the largest peacetime deficits in modern history. As a percentage of GDP, only COVID and World War II were higher.
While we didn’t get here overnight, markets see this as a tipping point.
Deficit spending needs to be financed. So, the U.S. Treasury must issue a mountain of new bonds. To clear that supply, yields are rising.
Most investors expected something more conservative.
What they got instead is a full-blown sugar high. And while that may have long-term consequences for debt sustainability, in the short term, it’s rocket fuel for risk assets.
If yields continue to climb, our exposure to gold and crypto in the Breakout Fortunes portfolio provides a built-in hedge – both tend to benefit from falling trust in government debt and currency systems.
However, this is only one of three “prongs” in the stimulus wave formula.
Deregulation Is On Deck
This topic isn’t getting as much media attention, but it’s arguably just as impactful.
Under the Trump/Bessent administration, we’re seeing a rollback of key post-2008 financial regulations:
- Looser capital requirements for banks
- Weaker stress testing standards
- A higher threshold for being deemed “systemically important”
- New incentives for bank lending
- Expanded balance sheet capacity via relaxed collateral constraints
All of this means one thing: more liquidity. Banks can lend more. Risk spreads tighten. And capital finds its way into equities, crypto, and other assets faster than before.
When combined with tax cuts, these two alone would trigger quite the market sugar high.
But remember, there is a third leg to this chair.
The Return of “Not-QE”
The Treasury is making it easier for banks to hold more government debt without blowing past regulatory limits.
How?
By adjusting how the Supplementary Leverage Ratio (SLR) is calculated.
This ratio measures the bank’s Tier 1 capital (common stock and retained earnings) divided by the total leverage exposure (loans, derivatives, etc.).
Higher SLRs should mean more stability and safety for the bank.
The Fed wants to exclude Treasurys from the Total Leverage Exposure
That means banks can “eat” more bonds – and the market treats this like a form of quantitative easing.
It’s not as headline-grabbing as traditional QE, but it has similar effects: lower volatility, more liquidity, and a bid under financial assets.
Think of QE from the Fed as “public” QE and a relaxing of the SLR as “private” QE.
And don’t forget: all of this is happening without a recession.
It’s worth remembering: The original idea was a “controlled demolition” in Q1 and Q2.
Slow the economy, cool inflation, and reset expectations. I outlined this approach before it was headline news in late February, before Trump tweeted out a video explaining the plan and Bessent discussed it at length in the media.
But while we got a stock market crash, the economic slowdown never materialized. And now we’re hitting the gas – tax cuts, deregulation, and stealth QE – without ever tapping the brakes.
That’s why this rally feels so strong. And why it could have more room to run.
But we’re not complacent.
What I’m Watching to Pullback Risk
You can be bullish and still have an exit plan. And here’s what I’m watching for that would make me start pulling back risk at these levels…
- Bitcoin breaking trend – BTC continues to act well, but if it falters hard, especially without a clear catalyst, that’s our first red flag.
- Euphoric action in garbage stocks – If we start seeing parabolic moves in low-quality names with no earnings or real growth stories, that’s usually a late-cycle warning.
- Negative price reactions to strong earnings – In a healthy market, good earnings get rewarded. If they start getting sold off instead, sentiment may have overheated.
Until then, we’re staying long, staying selective, and letting the stimulus wave do the heavy lifting.
Robert Ross
Robert Ross’s unique style of clear and direct stock research helped him build a massive following in the investment research industry, starting his career at investment research company Mauldin Economics and quickly rising through the ranks to become one of the youngest chief analysts in the industry. Today, over a million investors turn to Ross every month for his take on investing, economics, and personal finance. He now shares his unique insights in Total Wealth and Manward Money Report.
