Fed Chair Janet Yellen's uber-dovish speech Tuesday is already being felt in international markets. The renewed dollar weakness is affecting trading, as the strengthened overnight, and the Nikkei dropped 1.3 percent.
Elsewhere, many emerging market currencies, including the Chinese yuan, gained on the weak dollar. Expect further inflows into emerging market funds like the EEM. Foreign inflows into emerging market stock and bond funds hit a 21-month high in March.
Europe is trading in a more risk-on mode, with autos like BMW and Daimler up roughly 3 percent, and oil companies like Total and ENI bouncing back from Tuesday's losses. Banks like UniCredit are lagging.
The weaker dollar is helping commodity stocks like Anglo American, which is up 13 percent in London trading
Technology and energy are leading in early trading in the U.S.
The good news is the quarter is ending with markets at highs of the year, even if that means the is up only 1 percent. Volatility is at the lows for the year.
That's the good news. The bad news, as we have pointed out time and again, is that stocks are not cheap at roughly 18 times 2016 earnings, and the earnings picture is dismal. First-quarter earnings are expected to be down 8.7 percent, according to FactSet, which would be the largest decline since 2009.
More importantly, this would represent four consecutive quarters of negative earnings growth, also the worst since 2009.
This intuitively sounds like bad news, and I wouldn't disagree. The problem is, try correlating this to stock market performance. You can't.
There have been four periods where the S&P 500 has seen four consecutive quarters of earnings decline since 1990, according to our partners at Kensho (1990-91, 1997-98, 2000-2001 and 2007-2009.)
You would think there would be a correlation. 2000-2001 was the dot-com bust. 2007-2009 was the financial crisis.
On average across the four periods, the S&P 500 trades positive 50 percent of the time and returns on average -6.94 percent. This includes the enormous 46 percent decline in the S&P 500 in that 2007-2009 period.
Hm. Not very conclusive. What if you look ahead six months from these periods? It's split again, with the S&P up only 50 percent of the time, with an average return of 5.7 percent.
Again, inconclusive. You might try to pin this inconclusiveness on the Fed, whose intervention is likely a key factor.
It's also a problem that there are so few periods where this has occurred. Regardless, the stock market does not appear to show a clear correlation between earnings decline and stock market performance.