Stocks are indicated to open in the green today. But while
sentiment remains favorable, don't expect any major moves given the
absence of any catalysts, particularly following Tuesday's
The S&P 500 index barely made it above 2000, but it was
nevertheless a finish above the psychologically important level
that many of us didn't believe would happen. Stocks have surprised
many of us this year, particularly yours truly - bringing in solid
returns to follow up last year's spectacular performance. Given the
struggles in the small-cap space lately, not everything in the
stock market has worked this year. But the large caps certainly
don't seem to be experiencing any gravitational pull at this stage.
A combination of a very accommodating Fed, a very profitable
corporate sector and an improving U.S. economic backdrop has given
us the ever-rising stocks. Should we expect the rally to
The economic and corporate backdrops haven't changed. If
anything, they seem to have improved a bit on the margins. The one
factor changing is the Fed's policy. The central bank is already on
track to end its bond-purchase program by October this year and is
discussing now when it will start raising interest rates. One would
have thought that benchmark interest rates would have started going
up by now, in response to the QE end and the coming tightening
cycle. But what we have seen lately is exactly the opposite - rates
have actually come down. Is it a sign of complacency in the bond
market, a function of its skepticism about the economic outlook, or
a temporary safe-haven trade?
May be it's a combination of all three. But how stocks do from
here will depend a lot on what happens to bond yields. You should
always be paying close attention to interest rates, but this is a
particularly useful thing to do at present.
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