Yellen Shifts Gears

The Federal Reserve hopes market participants have come to accept a rate hike is on the way, allowing the central bank to avoid another taper-tantrum type event. From The Wall Street Journal:

According to Janet Yellen, If the economy continues to strengthen as the Fed anticipates and officials become more confident that low inflation will rise toward their 2% goal the central bank "will at some point begin considering an increase in the target range for the federal funds rate." With that assessment, Ms. Yellen took an incremental step, shifting the central bank away from promises that interest rates will stay low and toward a discussion of when and how fast they will move up.

So Far, So Good

Last week, the broad NYSE Composite Stocks Index finally posted a new high after failing to do so for over six months. In the wake of Yellen's "a rate hike could be coming" remarks, the market is holding last week's gains (see chart below).

This week's stock market video covers the NYSE new high in more detail along with numerous other bullish developments.

Investment Implications - The Weight Of The Evidence

Since noting there was a fine line between patience and risk management on January 15, the S&P 500 has gained over 120 points. The weight of the evidence, as tracked by our market model, has shown incremental improvement in recent weeks, allowing us to remain patient with stock-related positions. The bearish case will regain some traction if the S&P 500 closes below 2090 this week. As always, the market will guide us if we are willing to listen with a flexible and open mind.