Will the Fed push stocks into new breakout territory?

Trader on the floor of the New York Stock Exchange.
Brendan McDermid | Reuters

Finally, the big-cap has joined the small cap in record-closing territory. This is a great relief to everyone who worried that the market could not possibly advance once the Fed stopped its quantitative easing program, and certainly not within a few months of the Fed raising rates, which certainly seems like a strong possibility.

With the Federal Open Market Committee meeting this week, the big issue is, how will the central bank characterize the economy? Will the Fed statement be enough to get us decisively out of the trading range we have been in?

The economic data has certainly been choppy, with first quarter GDP now expected to grow a measly 1 percent.

However, I think there is a good chance the Fed will say the three factors that have been moving markets—weather, weak oil and a strong dollar—are all likely temporary, and are now reversing.

That may increase the chances of a September rate hike (I think likely) but it will also take some pressure off the recent worry about earnings.

Indeed, they are reversing: West Texas Intermediate crude oil is near its high for the year, while the dollar's rise has stopped and even declined since peaking in mid-March.

The strong dollar in particular has been a mess for multinational companies. Just look at the difference in earnings between the big-cap S&P 500—where many companies get more than half of their revenues overseas—and the small-cap S&P 600, where most get little if any revenues overseas:

Q1 revenues

S&P 500: down 3.4 percent

S&P 600: up 5 percent

Source: Factset

We are talking about a difference of more than 8 percentage points!