Last week saw the equity market hit new highs as economic optimism abounded after President Trump addressed a joint session of Congress. Continued expectations for significant fiscal stimulus and corporate-friendly tax policy have kept stocks well-bid since the election. With the S&P 500 Index up over 11% since the election and more than 6% since year-end, stocks have seen tremendous gains with very little pullback since November. It is now essential the administration and Congress deliver in market expectations.
Federal Reserve (Fed) Chair Janet Yellen drove another key news item last week when she indicated in her Friday speech that the Fed will increase interest rates in March. The only thing that seemingly could derail the hike is a weak February employment number, which I don't expect as the market is expecting an 180,000 increase in nonfarm payrolls. The expectation would be consistent with the average gains during the past six months. Unemployment claims made a 44-year low recently, which further supports the continued firm employment conditions.
I will be watching closely to see the push and pull of good economic data and a potentially more hawkish Fed over the next several weeks. In my opinion, the Fed's current monetary policy is accommodative and they will need to increase the pace of policy tightening if Washington is able to deliver on fiscal stimulus.
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