The Dow Jones, S&P 500, Nasdaq and Russell 2000 all hit new all-time highs on Monday.
Investors are excited and clearly believe that both large, blue-chip multinationals and smaller companies that do most of their business in the United States will continue to prosper.
So is this Donald Trump’s rally? Or the Janet Yellen rally?
Some strategists believe Trump’s stimulus plans and his talks about eliminating many burdensome regulations are the reasons stocks are soaring.
Or perhaps it would be better to characterize it as a continuation of Barack Obama’s rally?
One could argue that President 44 has dealt President 45 a good hand.
The strong job market and overall economy that Trump inherited may be the reason 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 performance of the stock market.
RBC strategist Jonathan Golub noted this in a report on Monday, which was aptly titled “Message to the market: It’s not just about 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 were predicting Hillary Clinton would be the next president.
But the stock has continued to rise since then, rising another 8% since Trump achieved the surprise victory (at least to the mainstream media and Wall Street).
You can’t have it both ways. It makes no logical sense to suggest that stocks rose because investors believed Trump would lose and that they continued to rise because Trump didn’t lose.
Bond yields have also risen 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 in late summer.
Of course, many investors were also hoping for stimulus from Clinton.
However, once 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 cited as the primary reason for a market rally that began months before anyone felt they could win.
What is really happening? The only constant over the last few months is the Federal Reserve.
Yes. The markets are reacting to Washington. But they are paying more attention to Janet Yellen, not the White House.
The Federal Reserve made it very 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 won 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 rate of 2.5% annually. But that’s not high enough to raise fears of runaway inflation and lead the Federal Reserve to aggressively raise rates.
Even if Yellen and the Federal Reserve were to raise rates three times this year, they would likely do so only a quarter point each time. That would bring the Fed’s key short-term rate to a range of 1.25% to 1.5%.
That’s still extremely low. At those levels, stocks would still be more attractive than bonds. Corporate profits should be able to continue growing at a healthy pace. And consumers would probably continue spending.
Therefore, investors would do well to keep a close eye on Yellen and not just focus on the president.
With that in mind, Yellen will testify before Congress on Tuesday and Wednesday. And what she says about the timing and magnitude of future rate hikes could end up keeping the rally in full swing, or stopping it in its tracks.
CNNMoney (New York) First published February 13, 2017: 12:30 pm ET