The broad market came through two major news events intact yesterday. The elections ran according to the script laid out and then miraculously the Fed played according to script as well. Following the afternoon announcement the markets acted as if they really didn’t know how to respond. The traders were set to respond if it was too much or too little stimulus, not just right. The day ended in positive territory with the Dow and the NASDAQ above their April highs. The S&P 500 is still below that point, but poised to make a run. Thus, all things are right as the market moves higher? You’ll have to watch the rest of the movie to see how it ends.
There was one surprise yesterday, the dollar held support and bounced back to even on the Fed news only to close modestly lower on the day. Pumping an additional $900 billion of liquidity into the system doesn’t generally get that response. I was still scratching my head last night over the reaction. Then this morning as I reviewed the data, there it was, the dollar fell nearly 1.5% overnight. All things are in balance now! The market rally has been produced for the most part by pumping liquidity into the system. Growth has been anemic at best and additional liquidity is likely to produce another push to the upside for equities. As the saying goes, don’t fight the Fed and that has certainly been the case the last two years.