The market rallied in the US on Monday, and we had two big-time Fed heads make public appearances.
First, uber-dove Charlie Evans went on CNBC, putting more meat on the bone of his notion that the Fed should be willing to let inflation drift higher in its pursuit of fuller employment.
Then later in the day, Ben Bernanke delivered a stirring defence of the Fed’s actions, and he called for the Fed to keep rates low, even after the recovery began.
So if you weren’t paying close attention, you might think: Dovish Fed folk talk, market rallies, QED.
Later in the day, on CNBC, everyone was talking about how the fundamentals didn’t matter to this market, and how it was all Fed-driven.
Except… that’s not what happened at all today.
First of all, the rally started in Europe, which was having a monster day before most people in the US even woke up.
The various PMI reports showed weakness, but in most countries they weren’t a total disaster.
Italy was a huge winner after its PMI report came in better than expected. Germany, the Eurozone’s economic engine, also wasn’t terrible. And even China had a couple of bright spots.
So things were looking up already in the morning.
And then things REALLY took off at 10:00 AM, when the US ISM report came in better than expected.
Here’s an intraday look at the S&P 500, via Bloomberg:
Not only did things drift downward after that, but the downward drift actually accelerated not long after Bernanke started speaking at 12:30 PM ET.
So, not only was the rally driven fundamental economic data, the Fed heads really had nothing to do with the gains.