The Dow, S&P 500, Nasdaq and Russell 2000 hit new all-time highs on Monday.
Investors are giddy with excitement and clearly believe that both large blue chip multinationals and small companies that do most of their business in the US will continue to thrive.
So this is Donald Trump’s rally? Or the Janet Yellen rally?
Some strategists believe Trump’s stimulus plans and talk of killing many burdensome regulations are the reasons why stocks are rising.
Or maybe this is better characterized as a continuation of Barack Obama’s rally?
One could argue that POTUS 44 has dealt POTUS 45 a pretty good hand.
The strong job market and global economy that Trump inherited may be why consumers and businesses are so confident.
But investors (and financial journalists) are often quick to give the president more credit (and blame) than he probably deserves for the stock market’s performance.
RBC strategist Jonathan Golub pointed this out in a report on Monday, aptly titled “Message to the Market: It’s Not All About the Donald.”
Related: Trump isn’t killing the bull market
Golub noted that the S&P 500 rose nearly 7% from late June to Election Day, a time when most polls predicted Hillary Clinton would be the next president.
But the stock has continued to rise since then, rising another 8% since Trump’s upset victory (at least for the mainstream media and Wall Street).
You can’t have it both ways. It makes no logical sense to suggest that stocks rallied because investors believed Trump would lose and continued to rally because Trump didn’t.
Bond yields have also been rising since Trump won, a phenomenon many investors have attributed to the likelihood of stimulus from the president and the Republican Congress.
However, Golub notes that the 10-year US Treasury yield also rose at the end of the summer.
Of course, many investors also expected stimulus from Clinton.
Yet again, many investors claim that Trump is the catalyst for something that was not only happening before he was elected, but was happening because many thought he would lose.
Related: Stocks have avoided a 1% drop for an unusually long period of time
So it’s strange that Trump is being cited as the main reason for a market rally that started months before anyone felt they could win.
What is really going on? The only constant over the last few months is the Federal Reserve.
Yes. markets are 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 interest rates in December and do so a few more times in 2017, regardless of who wins the presidential race.
The good news for investors is that the US economy appears to be growing steadily, but does not appear to be at risk of overheating.
Related: Here’s why the world’s biggest money manager is worried
The most recent jobs report showed that wages grew at a decent 2.5% annual rate. But that’s not high enough to spark fears of runaway inflation and lead the Fed to raise rates aggressively.
Although Yellen and the Fed raise rates three times this year, they are likely to do so only by a quarter point each time. That would bring the Fed’s key short-term rate to a range of 1.25% to 1.5%.
This is still extremely low. At these levels, stocks would still be more attractive than bonds. Corporate earnings should be able to continue to rise at a healthy pace. And consumers would probably keep spending.
So investors would be wise to keep an eye on Yellen and not just focus on the president.
With that in mind, Yellen plans to testify before Congress on Tuesday and Wednesday. And what she says about the timing and magnitude of future rate hikes could end up sending the rally into full gear, or stopping it in its tracks.
CNNMoney (New York) First published on February 13, 2017: 12:30 PM ET