![What does President Trump's election mean for the Federal Reserve?](https://i2.cdn.turner.com/money/dam/assets/161108095213-election2016-markets-up-trump-1024x576.jpg)
The Dow, S&P 500, Nasdaq and Russell 2000 all hit record highs on Monday.
Investors are excited and clearly believe that both large, blue-chip multinationals and smaller companies that do most of their business in the United States will continue to thrive.
So is this a Donald Trump rally? Or the Janet Yellen rally?
Some strategists believe Trump's stimulus plan and talk of eliminating many burdensome regulations are responsible for the surge in stocks.
Or perhaps this could be better characterized as a continuation of Barack Obama's rallies?
You could argue that POTUS 44 gave POTUS 45 a pretty good hand.
The strong job market and overall economy that Trump inherited may be why consumers and businesses are so confident.
But investors (and financial journalists) often give presidents more credit and blame for the performance of the stock market than they deserve.
RBC strategist Jonathan Golub made this point in a report Monday titled “A Message to the Markets: It's Not All About the Donald.”
Related: Trump Doesn't Kill Bull Markets
Golub pointed out that the S&P 500 rose nearly 7% from late June to Election Day. Election Day was a time when most polls predicted Hillary Clinton would be the next president.
But the stock has continued to rise since then, rising another 8% following Trump's upset (at least to the mainstream media and Wall Street) victory.
You can't have it both ways. It makes no logical sense to argue that stocks rallied because investors believed Trump would lose, and continued to rally because Trump did not lose.
Bond yields have also been rising since Trump's election, a phenomenon many investors attribute to the possibility of a stimulus package from the president and Republican Congress.
But Golub notes that even in late summer, the 10-year U.S. Treasury yield was rising.
Of course, many investors were also hoping for Clinton's stimulus package.
But once again, many investors are claiming that Trump was the catalyst for what happened not only because it happened before he was elected, but because many people thought he would lose.
Related: Stocks have avoided a 1% decline for an unusually long period of time.
So it's strange that Trump is being cited as the main reason for the market rally that started months before anyone thought he could win.
What is really happening? One thing that hasn't changed over the past few months has been the Federal Reserve.
yes. Markets are reacting to Washington. But they are paying more attention to Janet Yellen than to the White House.
The Federal Reserve made clear before the election that it would raise rates in December and several more times in 2017, regardless of who wins the election.
The good news for investors is that the U.S. economy appears to be growing steadily, but there appears to be no risk of overheating.
Related: Here's why the world's largest money manager is worried.
According to the most recent jobs report, wages have been growing at a respectable rate of 2.5% per year. But it is not high enough to raise concerns about runaway inflation and for the Federal Reserve to raise rates aggressively.
Even if Chairwoman Yellen and the Federal Reserve raise interest rates three times this year, they will likely only raise interest rates by a quarter of a point each time. That would push the Fed's short-term interest rate higher into the 1.25% to 1.5% range.
It is still at an extremely low level. At those levels, stocks would still be more attractive than bonds. Corporate profits should continue to grow at a healthy pace. And consumers will probably continue to spend.
Investors would therefore be wise to watch Yellen closely rather than focus myopically on the president.
With that in mind, Yellen is scheduled to testify before Congress on Tuesday and Wednesday. And what she says about the timing and size of future rate hikes could either ensure the rally continues at full speed, or it could stop it in its tracks.
CNN Money (New York) First Posted: February 13, 2017: 12:30 PM ET