Yesterday, the market came out of the gate hopeful for a bounce with some buyers who tried to pick a trading bottom after a slight pullback and watched for monetary policy clarity. It looked as though we may have gotten that after the Fed released its statement, and Federal Reserve Chair Janet Yellen answered questions as the market took off.

The Fed hiked rates 25 basis points (bps) as expected, but it also removed speculation for the remainder of the year by committing to two additional rate hikes.  

Ironically, Yellen seems reluctant to make too many positive assumptions about Donald Trump’s economic agenda and its potential impact on the economy. The Fed only sees the Gross Domestic Product (GDP) growth for 2017 at 2.1% and 2018 at 2.1%.

Still, the market got even stronger as Yellen talked about the committee carefully “monitoring actual and expected inflation developments relative to its symmetric inflation goal.” Many interpreted this to mean that she won’t be an inflation hawk and trip up a nascent economic recovery.

Stocks finished the session higher on Wednesday with the S&P 500 being the biggest winner of the large indices. The Dow was weighed down by softness in Goldman Sachs (financials priced in four total hikes for2017). The most compelling move, however, happened in the bond market as the 10-year yield plunged almost 4% on the day.

Right now, I would say the market is in a perfect storm with a limited risk of the economy overheating and rising enthusiasm across the spectrum.

Yesterday, the retail sales report was considered a dud, but it’s just echoing what the stock market has been telling us. Brick-and-mortar retail, especially department stores, are in trouble but the Internet is on fire. Building and garden materials continue to rock along with the share price of Home Depot (HD) and Lowe’s (LOW).

I continue to watch restaurants and sporting goods for an inflection point reversal. 

Interestingly, it’s not the consumer per se that’s going to make the difference in moving the economic needle. Sure, consumption is critical and it needs to pick up, but household formation is what will provide the sustained strength there. 

We need businesses to invest, and I think that will happen. 

Today’s Session

The market looks to open higher since the Fed has given the greenlight for out-sized economic growth. There is a general sigh of relief that the Netherlands didn’t go hard right, in a nationwide voting that posed a huge threat to the European Union, and Euro as a common currency.

This morning, housing starts and building permit data were mixed, but there is promising news in the details.  February starts gained 3.0% month to month, and 6.2% from the previous year.  Permits were lower, but I continue to think that’s more a function of regulations than an indicator of demand. 

The best part of the report was the 6.5% surge in single family housing starts, reporting its highest level in almost a decade.  I’m a major proponent of the notion of traditional family formation being a critical driver of the economy.