The action of the equity indices this past week illustrates how confident the market is that a dovish Fed will keep the uptrend running.
When he testified before Congress on Wednesday and Thursday, Fed Chair Jerome Powell made it clear that the Fed was looking to cut rates and was open to further accommodation. This was no surprise to anyone that has been monitoring signals from various Fed members. The chances of a rate cut at the end of July was near certain and Powell simply helped to confirm that thesis.
The market has been anticipating and celebrating a dovish Fed for quite a while now but this good news never seems to be fully priced into the market. This week the indices broke to new all-time highs and then built on the gains in thin trading to wrap things up. There was even a spike into the close on Friday to ensure that the indices closed at record levels. The celebration of the dovish Fed never seems to end.
The bears have been warning us that the Fed can't save us from a slowing economy but this market has completely ignored that argument. With another earnings season starting this argument will be put to a test. There is a likelihood that we will hear how the trade wars are causing uncertainty and some slowdowns, but guidance will be the key.
Even if there are some poor reports the market may be willing to shrug them off due to an unwavering confidence in a friendly Fed.
Currently, the market has momentum on its side. Indices that are hitting new all-time highs don't suddenly collapse and go straight down. If you insist on trying to time a market top then stay patient and appreciate the fact that momentum has a tendency to go further and last longer than seems reasonable.
Have a great weekend. I'll see you on Monday.