Janet Yellen, Fed Chairwoman, has a pretty good handle on the economy.
And she has a theory about why the market is on a tear, which she shared this week during her testimony in front of the House Financial Services Committee.
It’s not really about the market fundamentals, she says, or what has already happened.
It’s more about what investors are anticipating will happen.
“I think market participants likely are anticipating shifts in fiscal policy that will stimulate growth and perhaps raise earnings,” Yellen said.
What Yellen is referring to are those pro-business policies President Trump has promise to unleash, including cutting individual and corporate taxes, loosening bank regulations, and increasing government spending.
Yellen’s interpretation is not that surprising. In fact, the stock market is normally viewed as an indicator or predictor of the economy, and tends to trend up (or down) months ahead of actual economic expansion or contraction.