Markets Cheer Fed Rate Hike!

As expected, the Federal Reserve raised short term interest rates by one quarter point and indicated that they will keep raising rates throughout the year albeit gradually. I do think what helped the markets yesterday was the language of only two more rate hikes this year. The economic data coming out so far is stronger than expected including the February jobs report which confirmed how the job market is continuing to expand and this had some pundits thinking three more rate hikes were in the cards for 2017, not just two. Markets rallied once again on the news and quite frankly the market is seemingly rallying on anything that hits the tape. That said, the Federal Reserve is doing a masterful job with how it is handling the change of guard so to speak from accommodation to raising rates and how they are communicating each message.

So what does this mean to the markets going forward? I gotta tell you as much as I have been expecting volatility to increase, my expectations now are as long as the Fed remains in its current position, volatility may just stay in hibernation until further notice. I have not seen a market to where vol has been and remains this low. As I write this blog the CBOE Market Volatility Index also know as the VIX remains historically low and even when there is pressure on stocks, the VIX does not move very much, just look at the chart below.

Taking a look at the four major indices, The Dow Jones Industrial Average (chart), the S&P 500 (chart), the Nasdaq (chart) and the small-cap Russell 2000 (chart) all are within striking distance of their record highs. The question now becomes will valuations be able to support the continuation of this bull market or will this be the catalyst to bring pause into this historic bull run. We won’t have to wait too much longer as the first quarter of 2017 winds down and companies prepare to report their earnings results beginning in April. Paula and I wish everyone a very safe and Happy St. Patrick’s Day 🙂

~George

VIX chart - Paula Mahfouz

 

 

 

Dow 21,000 Are You Kidding?

This market is unbelievable! As I am writing this blog the Dow Jones Industrial Average (chart) has eclipsed the 21,000 mark. This after President Donald Trump’s first speech to the joint session of Congress. Not only has the Dow breached 21,000, the Nasdaq (chart) has also set a new record this morning at 5,875, the S&P 500 (chart) has set a new record of 2,384 and counting, the small-cap Russell 2000 (chart) has hit a new record high and even the Dow Jones Transportation Average (chart) has set a new record high this morning at 9567.

It’s been exactly one month since the Dow Jones Industrial Average (chart) topped the 20,000 mark and now catapulting through 21,000! It’s inconceivable that the Dow has tacked on yet another 1,000 points in a month. The bears must be in shock! I am not exactly sure what President Trump said last night that is any different from what he has already promised during his campaign and during his inaugural speech in January. One would think that the markets have already priced in the “huge” corporate tax cuts Trump has promised. Also, I thought that the markets have also priced in the proposed $1 trillion dollar infrastructure spend. One thing for sure, right now the markets don’t care about valuations or the fact that it will take time for the Trump administration to figure out if the tax cuts or infrastructure spend as promised will even occur as designed?

I like to close my blogs out with the current technical take of the indexes. Quite honestly, the technicians are also baffled about this tape. The Dow Jones Industrial Average (chart) remains in extremely overbought conditions as does the S&P 500 (chart). The Nasdaq (chart) just re-entered overbought territory according to the relative strength index and the small-cap Russell 2000 (chart) is heading in that direction. We are witnessing one of the strongest bull markets in history!

Good luck to all 🙂

~George