Stocks Rally as “Bearish Headlines” Keep Feeding the Bull

U.S. equity markets are higher early Monday with the Dow rapidly approaching a record high and the NASDAQ Composite hitting 8000 for the first time in history. I guess that smart money is still ignoring all that “noise” from President Trump. Have we ever seen a bull market feed on a weekly string of negative comments about the President’s legal woes and the negative impact of tariffs on an economy?

Well a bull has to eat and so does a buyer so keep feeding the negativity and headline-trading bears, keep throwing out those sell orders because the buyers seem to have a tremendous appetite.

Several months ago, a liberal TV talk show host suggested the only way to beat Trump and the Republicans is to wreck the economy or do something to drive stock prices lower. He suggested that voters care only about their jobs and their retirement accounts. This may explain the constant negativity on the major financial websites.

The academic world, for example, seems to be focusing on economic models that point toward Trump destroying the global economy with his tariffs and the potential trade war. However, what they fail to acknowledge is buying momentum. It’s if they don’t know it even exists. And maybe they don’t because after all, economists can’t look at technical indicators because technical analysis is voodoo to most.

So let’s just say that the bull market will end when the buying stops. And right now, all the money and momentum is flowing into equities.

Another Bullish Deal

Helping contribute to the rally this morning is more bullish news. Mexican officials told CNBC on Monday that trade talks with the U.S. have wrapped up, adding an announcement could come later in the day.

Mexican Economy Minister Ildefonso Guajardo said the two sides were likely “hours” away from reaching a deal. “We’ve continued making progress,” Guajardo told reporters. President Donald Trump later tweeted that “A big deal looking good with Mexico!” Now that’s the kind of “noise” I like to see.

Canada is next with the U.S. hoping to establish a bilateral agreement the move on to a trilateral agreement.

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What Did Powell Say?

I’ve seen a lot of headlines saying that Fed Chair Powell sparked the rally in stocks on Friday, but hardly anything about him driving the U.S. Dollar lower. Once again Trump gets no credit for contributing to the rally but faced plenty of criticism last week when the dollar plunged for one hour, yes, just one hour after he said he “wasn’t thrilled” with the Fed raising rates.

Flashback to Friday, in my opinion, Powell drove the market up and the dollar down because he flew too close to the sun with his constant comments about gradual rate hikes. To some, this meant a slow down in rate hikes especially since he suggested inflation was essentially under control.

What I believe Powell was suggesting was that the Fed was coming close to a neutral rate. This is the level of the Fed’s benchmark federal funds rate that is not stimulating the economy but also not constraining it.

This is bullish for the stock market because it means rate hikes could stop sooner than expected with the bull market still intact despite 7 or more rate hikes and the reduction of the Fed’s balance sheet. It’s bad news for the U.S. Dollar because the other major central banks will raise rates while the U.S. is not and this will reduce the dollar’s attractiveness as an investment.