The Dow, S&P 500, Nasdaq and Russell 2000 each hit all-time highs on Monday.
Investors are giddy with excitement and confident that large blue chip multinationals and small businesses that do most of their business in the United States will continue to thrive.
Is this a Donald Trump rally? Or a Janet Yellen rally?
Some strategists think Trump’s economic stimulus and talk of getting rid of a slew of nasty regulations are why stocks are soaring.
Or is this better characterized as a continuation of Barack Obama’s rally?
It can be argued that POTUS 44 dealt POTUS 45 a pretty good hand.
The robust job market and overall economy inherited by Trump may be why consumers and businesses are so confident.
But investors (and financial journalists) often give the president more credit and blame than the stock market’s performance deserves.
RBC strategist Jonathan Golub pointed this out in Monday’s report, aptly titled ‘Message to Markets: Donald’s Not Alone’.
RELATED: Trump Isn’t Killing the Bull Market
Golub noted that the S&P 500 rose nearly 7% from late June to Election Day. This is a time when most polls predicted Hillary Clinton would be the next president.
But the stock has continued to climb since then, up another 8% since Trump’s surprise win (at least for mainstream media and Wall Street).
You can’t have both methods. It makes no logical sense to suggest that stocks rose because investors believed Trump would lose, and that stocks continued to rise because Trump didn’t.
Bond yields have also risen since Trump’s victory, which many investors attribute to potential stimulus from the president and Republican Congress.
But Mr. Golub points out that 10-year Treasury yields were still rising at the end of the summer.
Of course, many investors also expected stimulus from Clinton.
Again, many investors argue that Trump was the catalyst for something that was happening not only before he was elected, but because many thought he would lose. .
RELATED: Stocks have avoided a 1% plunge for an unusually long time
So it’s odd that Trump is being cited as the main reason for the market rally that started months before everyone thought he could win.
what is really going on? Over the past few months, what has remained constant is the Federal Reserve.
yes. Markets are reacting to Washington. But they pay more attention to Janet Yellen, not the White House.
The Federal Reserve (Fed) has made clear before the election that it will hike rates in December and likely hike several more in 2017, regardless of who wins the election. I was.
The good news for investors is that the US economy appears to be growing steadily, but no risk of overheating.
RELATED: Here’s why the world’s biggest money manager is worried
According to the latest employment figures, wages are growing at a decent rate of 2.5% per year. But that is not high enough to raise concerns about runaway inflation and for the Fed to hike rates aggressively.
Even if Yellen and the Federal Reserve hike rates three times this year, they could only raise rates by a quarter of a percentage point each time. This will push the Fed’s key short-term interest rate to his 1.25% to 1.5% range.
it is still very low. At these levels, equities are still more attractive than bonds. Corporate earnings should be able to continue rising with a healthy clip. And consumers will likely continue to spend.
Investors would therefore be wise to keep an eye on Yellen rather than short-sightedly looking at the president alone.
With that in mind, Yellen is scheduled to testify before Congress on Tuesday and Wednesday. And what she says about the timing and magnitude of future rate hikes could keep the rally moving full steam ahead or halt it in the middle.
CNNMoney (New York) First published February 13, 2017: 12:30 PM ET
