Mid-Day Market Report: The Fed Dovetail

So, Yellen really is a dove.

That was investors’ takeaway from Federal Reserve Chair Janet Yellen’s speech Monday morning. The market rallied on her 10a.m. comments at a conference indicating that the underlying U.S. economic recovery is not sufficiently robust to warrant higher benchmark interest rates or more aggressive tapering for some time.

Yellen “THE SHOW GOES ON” $SPX $SPY $ES_F $FED. wait no, wolf of wall st said that, same diff.

— TopstepTrader (@TopstepTrader) Mar. 31 at 09:56 AM

The S&P 500, $SPY, and the Dow, $DIA, each climbed nearly a percent by 1 p.m. The Nasdaq, $QQQ, jumped more than a percent.

$SPY Today’s action has a different feel to it. It is NASDAQ led up move.

— h an (@anhyun45) Mar. 31 at 11:47 AM

The StockTwits’ social heat map showed bullish sentiment ruled the morning—though small cap biotech companies, such as Mannkind, $MNKD, continued to see the wrath of frustrated biotech investors. Cashtaggers fear that Mannkind’s inhaled diabetes drug will not gain broad FDA approval because of respiratory complications. BlackBerry also saw aggressive selling.

Screen Shot 2014-03-31 at 10.45.36 AM

 

In her speech, Yellen made it clear that she is particularly concerned about the recovery—or lack thereof—in the labor market. The unemployment rate stood at 6.7% in February, above the 5.2% to 5.5% the Fed considers consistent with maximum employment. The Bureau of Labor Statistics said last month that the “jobless rate has shown little movement since December” and the number of long-term unemployed increased. The new Employment Situation report for March comes out Friday at 8:30 a.m.

“The recovery still feels like a recession to many Americans, and it also looks that way in some economic statistics,” Yellen said to a crowd at the National Interagency Community Reinvestment Conference.

Accommodative monetary policy is seen as a boon for stocks because it makes it easier for Americans to get affordable loans and supports housing prices. That, in turn, makes Americans feel richer. The wealthier consumers feel, the more money they spend, the more sales companies make, the more earnings they post, and the more money returned to shareholders.

$SPY $QQQ $DIA “Whats the button that keeps stocks from giving up gains in the afternoon?”, Janet Yellen Head of the Federal Reserve

— uranium pinto beans (@UPB) Mar. 31 at 09:58 AM

That’s one reason why the market continues to go up as the Fed injects more stimulus into the economy. Just check out this oft-cited chart from StockTwits’ user Michael Samhan.

S&P and QE update including taper (bored today) $SPY $QQQ $FED http://stks.co/s09RL

— Michael Samhan (@M5amhan) Mar. 28 at 01:02 PM

Bears argue that the easy money party can’t last forever. They worry that, when the Fed stops buying bonds, rates will jump, stocks will tumble, asset prices will fall, the government will have to face its $17.5 trillion debt, and investors will be left with one hell of a hangover. And they argue that the five-year bull market, in anticipation of the inevitable end of quantitative easing, is becoming bearish. Sentiment on the S&P 500, $SPY, is 60% Bearish, according to StockTwits’ analytics.

$SPY even Yellen and window dressing can’t stop this fade of the open we’ve been seeing the last several days

— J. Scales (@Scaletrader) Mar. 31 at 11:23 AM

$SPY I think Sesame St need to explain the problem the FED and Obama have failed to get a grip of. http://stks.co/r09zx

— Gary Fitton (@MaxDamage) Mar. 31 at 11:23 AM

Maybe. Or perhaps the economy will pick up enough speed on its own to create a virtuous cycle. At least that’s what the Fed hopes and what longer-term investors are banking on.


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