The Fed under Chair Jerome Powell has grown more comfortable talking about using fiscal policy to fight downturns, as well. The European Union, after mistakenly turning to austerity in the aftermath of the Great Recession, is now more focused on using fiscal stimulus, too. Joe Biden, whose lead in the presidential polls continues to grow, has talked about the need for trillions of dollars of new spending to meet this moment.

This pivot makes sense because the economic challenges of the millennial generation, now in its 20s and 30s, is in some ways the opposite of what baby boomers faced at the same age. Rather than struggling with high inflation and interest rates, the challenges have been low wage growth and a labor market that too often is far from full employment.

Just as in the early 1980s, financial assets are largely not priced for this shift. Long-maturity Treasuries yield less than 1.5% as investors either assume inflation will never sustainably hit the Fed's 2% inflation target or they're willing to accept negative real yields in a low-growth world. As for the tech stocks investors are clamoring for, they're growing more at the expense of legacy companies and industries than benefiting from a robust growth environment. Stocks tied to the latter, such as financials, overseas companies and commodities, have much lower valuations.

But it's those latter investments that are more compelling in a world where fiscal stimulus is the preferred tool of economic policy makers. Bonds were the big winner when central banks used monetary policy to crush inflation and fiscal policy was used sparingly to manage the economic cycle. If the new world involves more fiscal stimulus, out-of-favor stocks and commodities geared to faster global growth might be the big winners.

This article was provided by Bloomberg News.

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