The Dow, S&P 500, Nasdaq and Russell 2000 reached new highs on Monday.
Investors are buzzing with excitement and clearly believe that both large multinational blue-blue chip companies and smaller companies that do most of their business in the U.S. will continue to thrive.
Is this a Donald Trump rally? Or the Janet Yellen rally?
Some strategists believe Trump’s incentive plans and talk of killing many tough regulations are the reasons why inventories are growing enormously.
Or maybe this is better characterized as a continuation of the Barack Obama rally?
You could argue that POTUS 44 sent POTUS 45 with a pretty good hand.
The solid labor market and overall economy that Trump inherited may be the reason why consumers and businesses are so secure.
But investors (and financial journalists) often give the president more credit – and guilt – faster than they probably deserve to work on the stock market.
RBC strategist Jonathan Golub pointed this out in a report Monday, aptly titled “Message to the Market: It’s Not All About Donald.”
Related: Trump is not killing the bull market
Golub noted that the S&P 500 rose nearly 7% from the end of June to election day – 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 pulled off a troubled (at least the mainstream media and Wall Street) victory.
You can’t have both ways. There is no point in suggesting that stocks are gathering because investors believed Trump would lose and that they continued to gather because Trump did not lose.
Bond yields have also been on the rise since Trump won, a phenomenon that many investors have attributed to the likelihood of a boost by the president and the Republican Congress.
However, Golub points out that the yields on the 10-year American treasury are also increasing during the summer.
Of course, many investors expected a boost from Clinton as well.
But once again, many investors argue that Trump is a catalyst for something that happened not only before he was elected, but also because many thought he would lose.
Related: Stocks avoided a 1% dive for an unusually long period of time
It is therefore strange that Trump is cited as the main reason for the market rally that began months before anyone felt they could win.
What’s really going on? One constant over the last few months has been the Federal Reserve.
Yes. markets react to Washington. But they pay more attention to Janet Yellen than the White House.
The Fed made it clear before the election that it is likely to raise interest rates in December and will do so several more times in 2017 regardless of who wins the race for president.
The good news for investors is that the U.S. economy seems to be growing steadily, but it doesn’t seem to be threatening to overheat.
Related: Here’s why the world’s biggest money manager is worried
The latest business report showed that wages at a rate grew at a fee of 2.5% per year. But that’s not nearly high enough to spark fears of inflation and lead the Fed to aggressively raise rates.
Even if Yellen and the Fed increase three times this year, they are likely to do so only a quarter each time. That would push the Fed’s key short-term rate to range from 1.25% to 1.5%.
It is still extremely small. At these levels, stocks would still be more attractive than bonds. Corporate earnings should be able to maintain healthy growth. And consumers would probably continue to spend.
So investors would be wise to follow Yellen closely and not just focus on the president,
With that in mind, Yellen is ready to testify before Congress on Tuesday and Wednesday. And what she says about the timing and magnitude of future speed increases could turn into continuing to hold the rally full steam ahead – or stop it dead in its tracks.
CNNMoney (New York) First published February 13, 2017 at 12:30 PM ET