November 19, 2013 at 10:52 AM EST
Dow Jones Industrial Average, S&P 500: Don’t Fight The Fed
INDEXDJX:.DJI, INDEXSP:.INX, NYSEARCA:SPY, NYSEARCA:DIA, DJI:DJI, CBOE:SPX, NQ:COMP, NY:XAX Related posts: Dow Jones Industrial Average: Bulls and Bears Fight It Out Dow Jones Industrial Average: This Little-Known Indicator Says Stocks Are About To Tumble A Bearish Sign For The Dow Jones Industrial Average Why 30,000 On The Dow Jones Industrial Average Will Become Reality Dow Jones Industrial Average: Is The Stock Market Rally About To End?

bullish buyDouglas Davenport: Janet Yellen sailed through questioning by the Senate Banking Committee last week, and it’s all but certain that she’ll be confirmed as the first female Federal Reserve chairman. Investors viewed that as a signal that monetary policy for the foreseeable future will be more of the same — in short, easy money as far as the eye can see.

Now, I’m no fan of the Fed’s quantitative easing (QE) programs. But among investors, that is clearly a minority opinion. Imagine where equities would be — not to mention the labor market and the economy — if the central bank had never embarked on its money-printing spree. The bottom line is that QE matters to the markets. And if you care about the value of your portfolio, what matters to the markets should matter to you.

Where would the market be if the Fed hadn't gone on a money-printing spree?
Where would the market be if the Fed hadn’t gone on a money-printing spree?

Another Fed-Inspired Rally

I wasn’t the slightest bit surprised that stocks staged a rally last week, in anticipation of an easy confirmation process for Yellen. But the latest leg in this bull market is not just based on the idea of a seamless transition at the Fed. In fact, everything seems to be setting up for a continuation of the rally: Cyclical assets are holding up well, while defensive assets — including bonds — are not in great demand. Fear peaked in October. And buyers keep stepping in whenever the S&P 500 approaches support levels.

Perhaps the most cogent argument in favor of the status quo comes from Mohamed El-Erian of PIMCO, the largest bond manager in the world:

Last Thursday’s hearing signaled that, despite imperfect policy tools, the Fed is committed to keeping its foot on the accelerator even though outcomes may well continue to fall short of expectations, and even though the “costs and risks” are likely to rise. If it ends up making a mistake, something that it will try very hard to avoid, it would likely be one of excessive accommodation rather than premature tightening.

The Fed’s Effect on Your Portfolio

The financial markets seem to agree with El-Erian’s assessment. And judging from the recent strength in U.S. equities, they believe in the wisdom of the adage: “Don’t Fight the Fed.”


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As you can see, the S&P 500 remains in a bullish uptrend, with price holding steady above the 3- and 5-day exponential moving averages.

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Related posts:

  1. Dow Jones Industrial Average: Bulls and Bears Fight It Out
  2. Dow Jones Industrial Average: This Little-Known Indicator Says Stocks Are About To Tumble
  3. A Bearish Sign For The Dow Jones Industrial Average
  4. Why 30,000 On The Dow Jones Industrial Average Will Become Reality
  5. Dow Jones Industrial Average: Is The Stock Market Rally About To End?

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