The Low Maintenance Bull Market – Ed Yardeni

by Marilou Moursund on April 30, 2013

in Bonds,Economic Indicators,Fed policy,Foreign Markets

The S&P 500 hit an all-time high yesterday of 1593.61, while the Nasdaq hit a twelve year high. Ed Yardeni”s Morning Briefing today had a good explanation for the continued strength in U.S. markets despite the continued mixed economic data.

This is a low maintenance bull market. All that the bulls want is for the Fed to continue to buy $85 billion per month in securities and the Europeans to do whatever it takes to avoid a financial meltdown. Those wishes are still coming true, which explains why the S&P 500 rose to yet another new record high of 1593 yesterday. (I am still targeting 1665 before the end of the year, or sooner.) The bulls aren’t being pigs. They aren’t complaining that the first quarter’s revenues for the S&P 500 have been disappointing. The recent batch of weaker-than-expected US economic indicators hasn’t fazed them either. Let’s review what’s keeping the bulls charged up:

1) Fed continues to play along. Jon Hilsenrath said it all yesterday in his WSJ about the FOMC meeting scheduled for today and tomorrow: “Federal Reserve officials are likely to continue their easy-money policies at the central bank”s policy meeting on Tuesday and Wednesday, in part because several recent

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inflation measures have fallen well below the Fed”s 2% target.” That’s a relatively new development. Until recently, Fed officials said that their ultra-easy monetary policy was necessary to reduce the unemployment rate to 6.5%. They said that they would pursue this course as long as inflation didn’t rise more than 50bps above their 2% inflation target. Now they seem to be thinking that with inflation heading below rather than above this mark, there’s all the more reason to stay with the easing course.

2) Europeans continue to muddle along. According to a few press accounts, yesterday’s rally was attributed to progress made over the weekend by Italians to form a government. If that’s so, then the bulls really aren’t asking for much to keep themselves bullish. There’s already plenty of chatter that Italy’s latest government won’t last for very long. But who cares? Italian 10-year government bond yields have fallen below 4.0% (Fig. 7). Spanish yields are headed in the same direction.

3) US economy cruising along. It’s almost May, so it must be almost time to sell and go away. The bears have been predicting that weaker-than-expected economic indicators during the spring would cause stock prices to swoon. They were right about the batch of economic indicators for March. Debbie and I still blame all the bad winter weather during the month for the weak indicators. However, the available batch of April data is also on the weak side so far, particularly the business surveys conducted by the various Fed districts. Nevertheless, stock prices are still making new highs.

The Chicago PMI came in today much weaker than expected at 49.0 versus an estimate of 52.5. However, consumer sentiment was much stronger than expected at 68.1 versus an estimate of 61.9. The ten year Treasury is trading at a new low for 2013 at 1.64%, and the demand for Apple”s new bond offering is approaching $40 billion for an estimated offering of $15 billion as the search for yield continues.

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