The Big Picture … Market Perspectives
By Bryan Rich
March 29, 2016, 3:30pm EST

There are two signficant events this week for markets. One came today. The other comes Friday (the employment report) which we’ll talk about later in the week.

First, today, Janet Yellen (the Fed Chair) gave a prepared speech in New York and answered questions. This is the first time we’ve heard from Yellen since the Fed surprised the market on March 16, by removing two (of what was previously four) rate hikes from their projections for the year.

In this environment, as we’ve said, by telegraphing a “less tight” policy, that’s effectively easing. And that has enormous ramifications for markets and the economy.

Still, the Fed’s action was just another leg in the coordinated policy response, by global central banks, to the bust in oil prices and the threats that it represented (i.e. bankruptcies, defaults, banking instability).

From the moment oil hit $26, the central banks have circled the wagons. The BOJ has acted (currency intervention), the ECB has acted (QE+), China (boosting bank lending) has acted and the Fed has acted (guiding a “less tight” path).

Source: Billionaire’s Portfolio, Reuters

The coordinated response from central banks has manufactured a 50% recovery in oil prices (moving many shaky energy companies away from the bankruptcy edge) and has reversed stocks from down on the year, back to positive territory.

So with this backdrop in mind, today, Yellen further cemented an easier stance than the Fed had in December. That further suppressed market interest rates (which maintains the fuel for housing and consumer credit recovery), pushed stocks higher (paper wealth, which makes people feel wealthier – they spend, they hire) and pushed the dollar lower, which underpins the recovery in commodities (further quelling the threat of the oil price bust). Expect that market reaction to continue.

The Fed has made it clear, they want to chase inflation and are happy to get behind the curve. We think we will look back at this Feb-March period (the coordinated actions) as the bottom in monetary policy (i.e. markets, inflation and growth go on a run from here, and global central bank policy ultimately turns from here).

Have a great night.
Regards,
Bryan