Stocks hit record again. But is Trump the reason?

What does Trump's presidency mean for the Fed?

The Dow, S&P 500, Nasdaq and Russell 2000 all hit new all-time highs on Monday.

Investors brimmed with excitement, and they clearly believe that both the large blue chip multinationals and the smaller companies that do most of their business in the US will continue to do business. continue to thrive.

So is this a Donald Trump rally? Or Janet Yellen’s rally?

Some strategists believe Trump’s economic stimulus plans and talk of deregulation are reasons for the stock’s jump.

Or perhaps this is better described as a continuation of the Barack Obama rally instead?

You could argue that POTUS 44 handled POTUS 45 pretty well.

The solid job market and overall economy that Trump inherited could be the reason why consumers and businesses are so confident.

But investors (and financial journalists) are often quick to give the president more credit – and blame – than they can deserve for stock market performance.

RBC strategist Jonathan Golub pointed this out in a note Monday, one titled “Message to the Market: It’s Not All About Donald”.

Related: Trump didn’t kill the bull market

Golub noted that the S&P 500 was up nearly 7% from the end of June through Election Day, a time when most polls predict that Hillary Clinton will be the next president.

But stocks have continued to rally since then, up another 8% since Trump pulled out of frustration (at least in the face of a win by the mainstream media and Wall Street).

You can have it in both ways. It doesn’t make sense to assume that stocks rallied because investors believed Trump would lose and they continued to rise because Trump didn’t.

Bond yields have also risen since Trump’s win, a phenomenon many investors attribute to the potential for stimulus from the Republican president and Congress.

However, Golub pointed out that yields on 10-year US Treasuries should also rise later in the summer.

Of course, many investors also expect stimulus from Clinton.

Yet again, many investors see Trump as the catalyst for something that was not only happening before he was elected, but is happening because many thought he was going to lose.

Related: Stocks have avoided a 1% drop for an unusually long time

So it’s odd that Trump is being seen as the main reason for a market rally that started months before anyone felt he could win.

What is really happening? One constant over the past few months has been the Federal Reserve.

It’s correct. The market is reacting to Washington. But they are paying more attention to Janet Yellen, not the White House.

The Fed made clear before the election that it would likely raise rates in December and do so a few more times in 2017 regardless of who won the presidential race.

The good news for investors is that the US economy seems to be growing steadily, but there is no danger of overheating.

Related: Here’s Why The World’s Biggest Money Manager Is Worried

The most recent jobs report shows wages growing at a decent 2.5% year-on-year. But that’s not nearly high enough to raise concerns about soaring inflation and prompt the Fed to aggressively raise interest rates.

Even if Yellen and the Fed raise rates three times this year, they are likely to raise only a quarter each time. That would push the Fed’s key short-term interest rate to a range of 1.25% to 1.5%.

That is still extremely low. At those levels, stocks are still more attractive than bonds. The company’s earnings should be able to continue to grow at a steady rate. And consumers will likely continue to spend.

So it would be wise for investors to keep a close eye on Yellen and not just focus on the myth of the president,

With that in mind, Yellen is set to testify before Congress on Tuesday and Wednesday. And what she said about the timing and intensity of future rate hikes could end up keeping the rally full ahead — or stopping it on track.

CNNMoney (New York) Originally published February 13, 2017: 12:30 PM ET

https://money.cnn.com/2017/02/13/investing/stocks-all-time-highs-donald-trump-janet-yellen-fed/index.html?section=money_news_international Stocks hit record again. But is Trump the reason?

Edmund DeMarche

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