"Whenever people agree with me I always feel I must be wrong." …Oscar Wilde (Irish novelist and playwright)
Today marks the beginning of one of the most exciting times of the sports year, as 64 teams battle it out over the next two and a half weeks to determine who will be crowned this season's college basketball champion (I don't count those first four play-in games, BTW). At the same time, millions of people across the country who know largely nothing about college basketball will compete to win their office bracket pools through the standard mix of gutsy intuition and quickly googled statistics, making the experience all the more fun for everybody. But while the Madness on the court doesn't tip off until this afternoon, the Federal Reserve, thankfully, preempted any madness in the markets yesterday by generally doing and saying what most expected out of them for the March policy meeting, as they decided to keep rates unchanged. They did, of course, acknowledge that "global economic and financial developments continue to pose risks," but there probably isn't an investor around who did not already believe that was the case. And the statement also made sure to note the continued strength of the labor market and pointed out that inflation has picked up in recent months, suggesting that the economy is still expanding at the moderate pace we have regularly written about in these commentaries.
The market's reaction to the Fed's policy statement and Janet Yellen's subsequent press conference boosted the S&P 500 all the way up to the top of the range it has been trapped in over the last few months and left the index 16 points from where it ended 2015. However, the top end of that range is now likely to bring in some sellers and the S&P 500 is about as far extended above its 50-day moving average as it ever gets, so it would still not surprise me to see stocks pull back a few percentage points. As I mentioned in yesterday's Charts of the Week publication, a drop back down around the 1950 area would be perfectly healthy market behavior to help recharge the internal energy, but if we don't get that expected pullback, it would be a clear sign that the bulls are back in control and eyeing the all-time high that is now only about 100 points away.
Still, not everyone has bought into this recent rally, as I read yet another lengthy article yesterday on a major financial website regarding the so-called "rounded top" being formed in the major averages. I've received quite a few emails on this topic lately, and my response has been that while it is certainly not ideal market action, trying to compare the current chart pattern to previous ones is essentially pointless given the unprecedented backdrop of such low interest rates this far into a secular bull market. Therefore, selling out of everything now, while we are only about 5% away from all-time highs in the S&P 500 just does not make sense for most long-term investors given an economy that appears to still be growing and in an environment where rates should stay accommodative for the foreseeable future. Yes, there may come a time when it is the time to sell, but we do not believe that time is now.
Andrew Adams, CMT joined Raymond James in 2008 and serves as the research associate to chief investment strategist Jeff Saut and chief economist Scott J. Brown, Ph.D. He focuses on macro investment strategy, with an emphasis on technical and quantitative analysis of the global markets.