Who\'s Right-Yellen or Stocks?
Friday delivered a much-anticipated recovery in the ISM Manufacturing survey to 51.8. Here's how the quant in charge of that factory gauge, Bradley Holcomb, summed it up: "It seems we've reached a bottom in this business of oil prices and all other related prices as well."
Oh really? So apparently all we needed was for oil to climb back to $40 and all is well again. Then why is the Fed so overly cautious about the economy and shifting more dovish to align with very subdued bond market inflation expectations?
Here's what BlackRock's chief of global fixed income, Rick Rieder, had to say on the matter Friday when he suggested the Fed may not hike interest rates at all this year...
"The rolling over of the growth rate of corporate profits in recent quarters should feed through to a worsening jobs picture by the back half of 2016."
That doesn't sound very bullish for the economy at all. So then why are stocks so jubilant these days? The tie breaker here may be wage growth. The Yellen Fed will do anything to get some wage inflation. And that means money will stay cheap for longer than anyone dreamed.
Bottom line: So, who's right—Yellen or stocks? They both are. With an ever-dovish and protective Fed, stocks have the green light for a solid Q2 and can postpone any further anxiety until Q3 visibility on earnings and the economy.
Best,
