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Feds Deliver A Promise And A Rally

A 4-day rally in the S&P 500 and the NASDAQ, the first 4-day rally since the end of November (Dow only up 3 days in a row). The S&P has rallied 5 percent in that period.

The Fed handed traders a very important promise today, saying that rates would stay "exceptionally low...for some time."

That is important, indicating the Fed will act aggressively if rates do rise.

Fed opens door to buying Treasuries. The Fed, in its policy statement, clearly opened the door to buying longer-term Treasuries as a way to keep interest rates down.

While they did not actually pull the trigger, there are important implications for the stock market here. The implication is that there is a "curse on cash" (as Tony Creszenzi aptly said); this now puts a premium on buying higher-risk assets.

Expect a continuing rally in corporate bonds, for example, and possibly preferreds of select stocks.

Is it different this time? Speaking of rallies, bears have laughed at the predictable rise in financials that has occurred in the past week (the Bank Index is up 20 percent in the last six trading sessions) and that has been a regular feature of bank stocks for the last five quarters: sell going into earnings, buy the week most finish earnings, sell a few weeks later.

Bulls (there are a few, not many) insist IT WILL BE DIFFERENT THIS TIME.

What's different?

  1. The fiscal stimulus;
  2. The bad bank plan;
  3. An aggressive Fed clearly indicating they will buy lots of different assets if there is further deterioration.

Will this make a difference?

Some think it could; today we are seeing the highest volume in the XLF (the ETF for financials) since the last bottom in November.

Is there a chance we could end the month POSITIVE? You're kidding! Even with a 5 percent rise in the Dow in the last week or so, we are still down 4.6 percent for the month (3.3 percent in the S&P).

The Dow would have to rally over 400 points in the next two days to accomplish that, which is asking a lot.

However, the NASDAQ might make it. Quietly, techs have outperformed the broader market all month. The NASDAQ is now down only 1.3 percent for the month.

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Questions? Comments? tradertalk@cnbc.com

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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