Bulls were hoping for a strong finish to the week, and Friday’s session did not disappoint. The Nasdaq led the charge higher as it hit a new 15-year high, and is now within striking range of its all-time high set way back in March of 2000. The Dow and the S&P 500 jumped on the upside bandwagon to close out the week, and they both are now close to their recent all-time highs. The S&P 500 is about 10 points away from its high, so the bullish camp is thinking that as long as all goes well, we might see both indices notch new highs next week.
And what a week it was. It has been a rough month for stocks, and this week’s upside snapped a three-week losing streak for the S&P 500. This week’s rally closed out on Friday with the majors posting weekly gains; 2.1% for the Dow, 3.2% for the Nasdaq and 2.7% for the S&P 500. What was so impressive about Friday’s lift is that it came without much in the way of economic news or earnings reports, which means that along with Spring, optimism is in the air. The price of oil rose about 2% on Friday, which alleviated some of the global GDP fears, and that seemed to be enough to help stocks close out the week strong.
So, who gets the credit for this buoyancy? Well, we have to give a big “hats off” to Janet Yellen and the Federal Reserve. There was a fair amount of hesitancy and apprehension heading into this week’s Fed meeting, mainly because the Fed had been hinting so much that it wanted to somehow raise rates. Of course, the Fed did not raise rates, but the worry was about the language that it would use in order to “prep” global financial markets for an inevitable rate hike or two (or more). It has been more than six years since there has been a rate hike by the Fed, so the Fed knows that it is walking on eggshells, even suggesting that it “might” raise rates.
It did drop the word “patience” from its statement, but Janet Yellen made it clear that it meant that the Fed would also not become “impatient” regarding rate hikes. This word juggling played out extremely well, and stock rallied hard and fast following Wednesday’s Fed announcement. Thursday was sort of mixed, as global markets and our own U.S. stock market gave the Fed statement some though, but by Friday, we were once again off to the races. The Fed succeeded by clarifying that it plans to raise rate, but it also did so in a manner that did not spook stocks.
The question now is whether the Fed raises interest rates in June or later in the year. In some ways, raising rates should be a non-issue. Short rates are essentially at zero, and the Fed knows that it needs to return to some sort of “normalcy” in order to keep its relevancy in the weeks, months and years ahead. What could the Fed do in the next economic crisis if rates are already at zero? The only response it would have would be to announce new, massive QE programs that might never work (sounds a lot like the EU and the ECB).
So if there were a smart time for the Fed to raise rates, it certainly seems a lot smarter to do it while the stock market is at an all-time high, and to do it sooner rather than later. June would probably be optimal, especially since if the Fed waits until September, it might have to deal with future problems that have not yet developed. September is historically a volatile time for the stock market. So again, maybe sooner might be better than later. Inflation is also no where to be found anywhere on the planet, so at least a rate hike sooner would not seem like a panicky reaction to inflation fears.
The main problem with ANY rate hike, however, is that investors tend to lose their marbles when the Fed begins raising rates. The Fed knows this all too well, and that is why it is acting so cautiously about even single, simple policy words like “patience.” We saw a weak and worried stock market for about three weeks on just the THOUGHT of rate hikes, so we can only imagine what stock and bond markets might do if and when rate hikes do begin. There is no rush, though, and the smattering of weak economic news keeps pouring in week after week. Thus with no inflation and a “so-so” economy, interest rate hikes just are not a big “must do” right now for the Fed.
Economic news was fairly light this week, but next week we get home sales, home prices, the CPI and durable goods numbers. On Friday, we see fourth quarter GDP and consumer sentiment, so investors will have a lot of information next week to make more sense of the economy and the current state of the stock market. Bulls would really like to see some proof that the economy is stronger than it currently seems, so stay tuned as we await what we learn next week.
Spring is here, the NCAA college basketball tournament is off to an exciting start, and the stock market is at or near all-time highs. The New Year has had some bumps along the way, but here we are in the later part of March and the stock market is suddenly looking fairly healthy. Global shocks have been minimal, and have you noticed that even Greece is out of the financial news? This week’s Fed meeting went well, and the financial picture has investors feeling optimistic about the prospects for the rest of the year unless, of course, if we see any “curve balls” or “Black Swan” events.
That said, the Gorilla wishes each and all a relaxing spring weekend. The aging bull market that began back in March of 2009 is still looking intact, and the numbers backing it up are still looking good. They are good numbers, albeit not all that great, but they are still good. Again, have a great weekend, and we will be back in action bright and early on Monday!
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