It Seems Investors Can Tune Out Anything

 

On Thursday, the nation was transfixed by the searing spectacle of Dr. Christine Blasey Ford and Judge Brett Kavanaugh’s conflicting testimony before the Senate Judiciary Committee over Dr. Ford’s allegations that he had sexually assaulted her while both were in high school. (On Friday, the Committee voted 11-10 to confirm Judge Kavanaugh to the Supreme Court, and the full Senate will vote on the nomination next week, after a possible FBI investigation.)

But while time stood still in the rest of the U.S.A., it was business as usual on Wall Street. The S&P 500 index, the Dow Jones Industrial Average and the Nasdaq Composite index all posted modest gains on fairly light volume. The three indices were mixed on Friday, and remain close to their all-time highs.

Earlier in the week, stocks slipped a bit, but not much, from last week’s all-time Dow and S&P highs as talks broke down in the trade and tariff war between the U.S. and China, the world’s two leading economic powers.

On Wednesday the Federal Open Market Committee (FOMC) raised the federal funds rate for the third time this year, to 2-2.5%, and signaled it would raise rates again in December. And oh, yes, the yield on the ten-year Treasury note hit 3.1%.

Months ago, any one of these developments would have caused a big sell-off. Not this time. What’s different?

First of all, Wall Street always worries much more about things before they happen than when they actually take place. The reality of trade wars and higher rates is apparently not as bad as investors’ worst fears about them.

Second, none of these developments is the end of the world. Investors still expect the U.S. and China (and Mexico and Canada and the E.U.) to strike a trade deal—eventually.

During the last market cycle, fed funds peaked at 5.25% in 2006-2007, when the ten-year Treasury’s yield also topped 5%. Both rates are still way below those levels, and it will likely take a long time before they get there.

Finally, the economy is so strong and corporate earnings so powerful they’ve made everything else irrelevant. This past week, the Conference Board’s U.S. consumer confidence index registered its highest reading since September 2000 and third-quarter GDP growth remained above 4%.

Meanwhile, FactSet Research projects third-quarter earnings will rise 20% over the same period last year, on track to be the third consecutive quarter of at least 20% earnings growth. That won’t go on forever, as tougher comparisons start to kick in. But investors are enjoying it while it lasts—and ignoring everything else.

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