The Dow, S&P 500, Nasdaq and Russell 2000 hit new all-time highs on Monday.
Investors are excited and clearly believe that both large blue-chip multinationals and smaller companies that do most of their business in the U.S. will continue to thrive.
And is this the Donald Trump demonstration? Or Janet Yellen’s demonstration?
Some strategists believe that Trump’s stimulus plans and talk of killing many onerous regulations are the reasons why stocks are rising.
Or perhaps this is best characterized as a continuation of Barack Obama’s demonstration?
You could argue that POTUS 44 has treated POTUS 45 a pretty good hand.
The solid labor market and global economy that Trump inherited may be the reason consumers and businesses are so confident.
But investors (and financial journalists) often go ahead and give the president more credit (and blame) than they probably deserve for stock market performance.
RBC strategist Jonathan Golub said in a report on Monday, aptly titled “Market Message: It’s Not All About Donald.”
Related: Trump is not killing the bull market
Golub noted that the S&P 500 rose nearly 7% in late June through Election Day, at a time when most polls predicted Hillary Clinton would be the next president.
But stocks have continued to rise since then, rising another 8% since Trump got the win (at least for the media and Wall Street).
You can’t have it either way. It makes no logical sense to suggest that stocks rose because investors believed Trump would lose and that they continued to pile up because Trump did not lose.
Bond yields have also risen since Trump won, a phenomenon many investors have attributed to the likelihood of stimulus from the president and the Republican Congress.
Golub notes that the yield on the U.S. Treasury at ten also increased during the late summer.
Of course, many investors also expected encouragement from Clinton.
But once again, many investors are claiming that Trump is the engine of something that not only happened before he was elected, but happened because many thought he would lose.
Related: Stocks have avoided a 1% immersion for an unusually long period of time
So it’s strange that Trump is cited as the main reason for a market rally that began months before anyone felt he could win.
What’s really going on? The constant of recent months is the Federal Reserve.
Yes. markets are reacting in Washington. But they are paying more attention to Janet Yellen, not the White House.
The Fed made it clear before the election that it would likely raise interest rates in December and will do so a few more times in 2017 regardless of who wins the presidential race.
The good news for investors is that the U.S. economy appears to be growing steadily, but does not appear to be at risk of overheating.
Related: Here worries the biggest money manager in the world
The most recent job report showed that wages were growing at a decent rate of 2.5% per year. But this is not high enough to provoke fears of wasted inflation and lead the Fed to raise rates aggressively.
While Yellen and the Fed are raising rates three times this year, they are likely to do so by just a quarter of a point each time. This would push the Fed’s key short-term rate from 1.25% to 1.5%.
This is still very low. At these levels, stocks would be even more attractive than bonds. Corporate revenue should be able to continue to rise at a healthy time. And consumers would probably keep spending.
That way, investors would be prudent to keep an eye on Yellen and not just have a focus of myopia on the president,
With that in mind, Yellen is due to testify before Congress on Tuesday and Wednesday. And what she says about the timing and the magnitude of future rate hikes could end up causing the rally to go ahead or leave him dead on his tracks.
CNNMoney (New York) First published on February 13, 2017: 12:30 ET