Gone are the days when the slightest hint of higher rates sent markets into a tailspin. Now, a relatively hawkish Federal Reserve Chair Janet Yellen has stocks headed for the longest rally in more than three years.<\/p>\n
Twelve months ago, Yellen\u2019s comment that rates would rise gradually even as global growth teetered and markets tanked only added to the rout: the S&P 500 Index sank 1.1 percent. Fast-forward a year and Yellen is more resolute in her intent. The improving labor market and faster consumer spending are sustaining growth that make it risky to wait too long, she said. The result: the S&P 500 vaulted to its fourth straight record and global equities surged.<\/p>\n
\u201cA year ago, if she had said this, it would probably have panicked the market,\u201d said Brad McMillan, chief investment officer of Commonwealth Financial Network in Waltham, Massachusetts, which oversees $114 billion. \u201cWe spent eight years with the economy slowly improving and slowly healing, and nobody ever believed we\u2019d get to take-off. Well, right now, there is a good chance we\u2019re at take-off.\u201d<\/p>\n
It seems markets don\u2019t mind a hawkish Fed if it\u2019s there to keep the economy from overheating, a reversal from the role the central bank\u2019s played throughout the seven-year bull market, when it uncorked unconventional policy to stimulate price growth. Now, the Fed is returning to its more familiar role: inflation cop.<\/p>\n
A lot has changed: profits and oil are up, deflation talk is down and China\u2019s threat to the global economy is much less discussed. It\u2019s also hard to ignore the impact of Donald Trump\u2019s presidency on the corporate mood. Measures of business sentiment have exploded since his election and investors have poured tens of billions of dollars into stock funds.<\/p>\n
At the same time, the calm in stocks is at odds with many depictions of the Trump White House, which Wednesday found itself embroiled in controversy over ties between the president\u2019s team and Russian intelligence agents. Many of the promises that led to the market\u2019s mood change remain only promises, from infrastructure spending to deregulation, and Trump\u2019s Twitter account is a constant source of volatility for individual stocks.<\/p>\n
Ironically, one thing that hasn\u2019t changed in 12 months are the economic expectations of professional prognosticators. In February 2016, economists surveyed by Bloomberg were forecasting quarterly GDP growth averaging 2.3 percent for the remainder of the year. Their estimate now, for 2017? Quarterly GDP growth of 2.3 percent.<\/p>\n
Of course, no such expansion materialized in 2016, and one interpretation of last January\u2019s market histrionics is that investors had a better handle on growth prospects than the experts. With Yellen holding rates steady until December, quarterly GDP growth averaged just 1.9 percent.<\/p>\n
Today, gauges of economic health beyond GDP are strengthening. Citigroup Inc\u2019s U.S. Economic Surprise Index, which measures the degree to which data exceeds expectations, is close to the highest in three years. The index has been positive since November after spending much of 2016 in negative territory. The S&P 500 rose 0.3 percent to a record at 1:51 p.m. in New York.<\/p>\n
Profit growth improved since a year ago. Corporate earnings contracted for five straight quarters through mid-2016, the longest skid since the financial crisis. They\u2019ve since recovered, with forecasts calling for 6.1 percent fourth-quarter expansion and 11.7 percent growth in 2017. That would be mark the best year since 2010 for S&P 500 companies.<\/p>\n
\u201cThere\u2019s been an adaptation in terms of what better fundamental economic data means for the market,\u201d said Mark Luschini, chief investment strategist at Philadelphia-based Janney Montgomery Scott LLC, which manages more than $50 billion. \u201cThe market is getting increasingly comfortable with this as an environment for fertile profit growth.\u201d<\/p>\n
Source: Bloomberg<\/p>\n","protected":false},"excerpt":{"rendered":"
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