You can't help it. Some days we see the markets totally derailed from their fundamentals and entirely dependent on outside events. Today's one of those days, because the Fed has spoken and the Fed did its best to do exactly what most people want, except the bears.
Hence the rally.
You may have heard a ton of verbiage today about what the Fed did or didn't do. It kept the word "gradual" in when it talked about the future rate hikes. It's forecasting two more hikes, which makes three for the year, which is not surprising.
The Fed basically did exactly what they said they would do, and without a surprise, the market rallied.
So why does a market rally on this news? If an important entity in relation to the stock market simply does what people expect, why is that greeted as positive by both the stock market and, in some ways, more important, the bond market, where rates went down and down hard?
I think that's the wrong way to look at it.
What happened today is the Fed didn't surprise anyone. There was a fear that the Fed would say it has to raise rates with alacrity because of inflation. That would have sent rates much higher in fear of inflation. The Fed could have said it sees the economy accelerating but inflation's under control so it will raise three more times this year but no more than that. A statement like that would have moved the bank stocks up. Instead, they were among the weakest performers.
Or the Fed could have raised rates by 50 basis points, shocking everyone and telling you it sees President Donald Trump triggering growth with inflation and that they have to rein him in and act as a counter to the White House.
That could have been entirely toxic to the stock market and a strong sign that the Fed perceives itself as a bunch of grown-ups lining up against all of the tax reform -- meaning budget busting -- that Trump favors.
What you need to know is this. The Fed tried to figure out what would be the least impactful, most informed and least surprising action and statement and deliver it, and the relief coupled with the recent short-term declines in the market produced a relief rally of excellent proportions.
Now let's talk about reality. In the last few weeks, I have assembled a group of CEOs to interview on Mad Money to get a sense of the real economy. We spoke to one of the largest aggregate companies, Martin Marietta (MLM) , deeply involved with the construction of big projects and roads, and business is booming. CEO Ward Nye said it's about as great an environment as he has ever seen.
We spoke to Bill Sandbrook, the CEO of U.S. Concrete (USCR) , one of the largest construction materials companies in the U.S., and business is quite simply terrific. You pour concrete when you choose to build something big -- infrastructure, headquarters, tall buildings -- and I was shocked at how positive business really is.
We discussed the state of the state, meaning the United States, with Greg Hayes, the CEO of one of the largest conglomerates in the world, United Technologies (UTX) , and he indicated that orders were way up for elevators and heating ventilation and air conditioning as well as aerospace. Think about that. What does it say? Non-residential construction is going gangbusters. In fact, the biggest gating factor? The company needs more workers.
We spoke to one of the largest makers of equipment for restaurants,Welbilt (WBT) , and its CEO, Hubertus Muelhaeuser, told us business is very good, not out of control great but very good.
We talked to Hamid Moghadam, the CEO of Prologis (PLD) , among the largest distribution and warehouse companies in the country, one that had a fabulous call on everything commerce, especially e-commerce, and he could not have described a more robust environment. In fact, it's about the best demand level he's ever seen and it is getting better. The big issue will be getting and building out enough space to meet his customers' requirements.
And we spoke to John Ferriola, the CEO of Nucor (NUE) , the largest steel company in this country. He was incredibly bullish about how business is shaping up for 2017 including steel for everything from autos to construction to infrastructure.
Meanwhile, behind the scenes I have been working pretty endlessly speaking to as many CEOs that I can in everything from banking to technology to basic industrial might. They have all echoed the comments of the CEOs I have just mentioned.
Now understand that's the reality and the reality is incredibly good as we have tried to present a full panoply of what goes into actual business.
But remember what I said could trump all of this good news? Perception! And I like that double trump entendre. If the Fed said something, anything, that indicated inflation was running hot, or that the federal government -- meaning Trump -- might ignite too much growth that has to be kept back because it will produce labor shortages, then all of those positive comments could be rendered moot. Sellers would say that whatever was said by these CEOs was in the past and that the future is gloomier. Traders would dump these stocks because of a belief that these execs don't understand the Fed is now the enemy, not their friend. And others would say. "look out, Janet Yellen and the Fed are declaring war against Trump and are concerned that he's all about busting the budget and giving huge tax breaks for the rich that we cannot afford."
We got none of that. We got what I regard as a predictable statement by a group of predictable people who want more people to be put to work and think that there is enough slack that it would be terrific if they all got jobs.
That predictability allows this event to be behind us and investors can take action and buy the shares of companies like the ones I have mentioned because their projections are liable to come true because the Fed isn't getting in the way.
At the same time, because the Fed predicted the economy isn't too hot and inflation's not really a factor, then interest rates came down because there are always people who take their cue from what the Fed said and the Fed basically indicated that bonds are a good buy. Why do I say that? Because an environment with moderate growth and below trend inflation, a market where the Fed isn't dumping its own big bond hoard, is a market worth buying into at these rates.
So the bond market equivalent stocks get bought, too.
Is all of this too good to be true? No. It simply reflects that we have a Federal Reserve that is thoughtful, rational and doing the right thing for all financial instruments and for actual businesses like the ones I mentioned.
I think this rationality, when coupled with the current logjam in Washington over the Affordable Care Act, coalesces to make it so we can wait for lower corporate taxes and repatriation. The Fed's not in the way. Business is good and getting better because of a positive deregulatory atmosphere. There's plenty of cash on the sidelines. So buyers feel emboldened with a rotation into the stocks of the most beaten-down groups, namely the minerals and the oils, proving once again, that you shouldn't panic into a rotation but you just need to let it run its course and start nibbling.
Here's the way to look at it: A couple of days a year, we are totally hostage to the Fed. Today the Fed set us free to invest in reality and banished the perception that it wants to derail stocks, bonds and the economy itself.