After twenty trading days, the U.S. stock market (as defined by the S&P 500) has moved a whopping point and a half. Yippee.
During those twenty days though - a span that encompassed all but one session for the month of March - there was a great deal of fretting about Russia, the Fed, interest rates, China, and the weather. During those twenty days the high flying mo-mo stocks in areas such as Biotech, Pharmaceuticals, and Social Media took it on the chin. And during those twenty days, the bears tried to convince anyone willing to listen that a market calamity was just around the corner.
And yet, here we are with the S&P 500 a mere 0.3 percent away from its all-time high. So what gives?
Cutting to the chase, the recent romp back to near all-time high territory was sponsored by a couple of headlines. One suggesting that Janet Yellen is as dovish as ever. And the other contending that the situation in Russia, at least as far as the stock market is concerned, is all but over.
But before we get to the headlines the produced Monday's triple-digit joyride to the upside, let's review how we got here.
First There Was Cold Was 2.0
While the month of March started off favoring the bulls, Russia's decision to first intervene on Crimea's behalf and then annex the former Soviet state (which, for the record had only been part of Ukraine for something like 24 years) put fears of another Cold War (or worse) with Russia on the table.
Suddenly there were worries about oil supplies. And then once people figured out that an awful lot of that oil usually winds up in Europe, the global macro geniuses began to hype the idea that an interruption in the flow of oil was sure to push the fragile eurozone economy back into the abyss.
Then there was the "invasion" of Crimea. On the surface, this had the look and feel of Iraq's incursion into Kuwait in 1990, which, of course, brought visions of severe market declines into the heads of those seeing the geopolitical glass as at least half empty. And to hear the bears tell it, Crimea was only the beginning. Putin was on the march.
The movement of troops into Crimea was followed by the referendum, which was touted as an election rigged by the evil Russians in order to forcefully retake the territory it once occupied. But with voter turnout that was higher than any Presidential election in U.S. history and 97 percent of voters favoring rejoining Mother Russia, it was hard to get too worked up about the idea that either WWIII or another Cold War was about to begin.
Then There Was The New Yellen Fed
After 18 months of Ben Bernanke's QEIII program and the resulting 50 percent gain in the stock market, one of the major worries in the market during March was that the new Fed Chair, Janet Yellen wasn't going to be as accommodative as her predecessor.
Remember, Bernanke's bunch had targeted an Unemployment Rate of 6.5 percent as the line in the sand that, when crossed, would cause the FOMC to begin removing the various party favors it had been providing for the past 5 years. So, with the Unemployment Rate starting to get uncomfortably close to that key, publicly stated threshold, those market participants who tend to dress in fur whenever possible, felt that the Yellen Fed might be forced to make good on Bernanke's plans.
Then there was the "dot plots" and the definitions that Ms. Yellen provided. At her first-ever press conference, the new Fed Chair pleaded with the press to ignore the plots behind the curtain and to listen to what the FOMC statement was saying. However, based on the "dot plot" that everyone was now buzzing about and the new definition of "a considerable amount of time," it sounded to some like Ms. Yellen was planning to hike rates sooner than the market had been expecting.
So, the bears had geopolitical issues in Russia/Ukraine, the ongoing economic concerns in China, and the fear that the Fed was planning to raise rates sooner than had been anticipated. Enter the two headlines.
Headline #1: Fed's Extraordinary Commitment to Stimulus Still Needed
During a speech in Chicago on Monday, Janet Yellen offered a great deal of comfort to anyone worried that the Fed was going to simply pack up and go home in the near term.
Ms. Yellen allayed fears that the Fed would continue to focus on the rapidly falling Unemployment Rate by saying, "The existence of such a large pool of 'partly unemployed' workers is a sign that labor conditions are worse than indicated by the unemployment rate."
"While there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health," Ms. Yellen added.
An analyst from Jefferies summed it up nicely by saying, "This could be one of the most dovish speeches I have ever read from a Fed official."
Another analyst from BNP Paribas said, "Yellen pulled out just about every dovish tool in the box as she highlighted that the economy needs extraordinary support for 'some time.'"
Boom, stocks ramped higher as Ms. Yellen basically made it abundantly clear the Fed's ZIRP (Zero Interest Rate Policy), which makes those fancy carry-trades oh-so easy for the big banks and hedge funds, wasn't going away any time soon.
Headline #2: Russia Signals It Will Withdraw Troops From Ukraine Border
According to the WSJ, a German government official said Monday that President Vladimir Putin told Chancellor Angela Merkel by phone that he had "ordered a partial withdrawal" of military forces that had been amassing along Ukraine's eastern border.
We probably don't need to go into much detail here as this headline reassured investors that, at least for now, Russia has no plans to annex any additional Ukrainian territory.
Sure, Russia is sneaky. Yes, this could easily be a stall tactic. But investors don't really care about Russia's long game or Ukraine to any great degree. No, the market cares only that something nasty isn't about to break out.
So There You Have It
So...with Yellen reaffirming her reputation as being an uber dove and Russia backing down, there was reason to cover some shorts and perhaps do a little buying on Monday.
The question of the day, however, is if the S&P can keep the upside momentum going and break on through to the other side soon. And this time, investors will be watching closely to see if any of the other indices will be joining in on the new-high fun. Because, if not, unless some new headlines crop up, the up-one-minute and then down-the-next market could easily continue.
Turning to This Morning...
March PMI (Purchasing Managers Index) data from China and Europe were in focus overnight. Despite continued weakness in the Chinese data (the official PMI hovered around an 8-month low) talk of economic stimulus has traders looking to front run the People's Bank of China this morning. With the exception of Japan, all the major overnight markets are higher and U.S. futures are pointing to an uptick at the open on Wall Street.
Here are the Pre-Market indicators we review each morning before the opening bell...
Major Foreign Markets:
- Japan: -0.24%
- Hong Kong: +1.35%
- Shanghai: +0.67%
- London: +0.52%
- Germany: +0.59%
- France: +0.79%
- Italy: +1.51%
- Spain: +0.87%
Crude Oil Futures: -$0.25 to $101.33
Gold: +$1.20 at $1285.00
Dollar: lower against the yen and pound, higher vs. euro
10-Year Bond Yield: Currently trading at 2.744%
Stock Futures Ahead of Open in U.S. (relative to fair value):
- S&P 500: +4.51
- Dow Jones Industrial Average: +43
- NASDAQ Composite: +9.76
Thought For The Day... You cannot escape the responsibility of tomorrow by evading it today. -Abraham Lincoln
Positions in stocks mentioned: none