December 20, 2016
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Fed Raises Rates

Last week was mixed for the markets, as the Dow increased by 0.44%, while the S&P 500 lost 0.06%, the NASDAQ dropped 0.13%, and the MSCI EAFE gave back 0.55%. We also saw a variety of data released, giving a similarly mixed view of recent economic activity. Retail sales and the Consumer Price Index showed modest gains, while industrial production and housing starts both declined. The biggest headline from last week, however, was a development the market anticipated for quite some time: The Federal Reserve decided to raise its benchmark interest rates – for only the second time since 2006.   Why did the Fed raise rates? The Federal Open Market Committee (FOMC), the group of Fed officials who meet to determine interest rates and other policies choices, has a mandate to “foster maximum employment and price stability.” In its quest to uphold this mandate, the FOMC aims to keep inflation at 2%, as this level can help support accurate financial forecasting and decisions while preventing harmful deflation. The act of adjusting interest rates can help control inflation and support economic strength. At its most basic, when the Fed lowers rates, they are indicating that the economy is contracting – […]
December 12, 2016
Heritage Investors Investment Strategy

Rational Exuberance?

On Friday, December 9, all three major U.S. stock indexes ended at record highs. For the first time in five years, they each posted gains every day of the trading week. The S&P 500 was up 3.08%, the Dow added 3.06%, and NASDAQ increased 3.59%. International stocks in the MSCI EAFE even gained 2.9%, despite potential risks from the Italian referendum and impending end of the European Central Bank’s quantitative easing. From our vantage point, we see a rally that appears to be picking up steam. Looking at this impressive growth, however, it’s easy to wonder whether the markets are becoming overvalued and a correction is in order. In keeping with this concern, last Monday, December 5, marked the 20th anniversary of Former Federal Reserve Chief Alan Greenspan’s famous warning about “irrational exuberance.” Back in 1996, Greenspan worried that overvalued stocks and extreme investor enthusiasm could drive stocks to reach unsustainable levels. His warning didn’t slow the markets’ growth at the time, and several more years passed before the eventual dot-com crash. So, are we facing the same irrational exuberance as in 1996? Hardly. We’d argue that rather than being overvalued, the markets have yet to reach their fair price. Domestic […]
November 29, 2016

Many Reasons to Give Thanks

During a week while many were thankful, the markets gave us much to be thankful for. Through the four-day trading week, the S&P 500 was up 1.44%, the Dow gained 1.51%, the NASDAQ added 1.45%, and the MSCI EAFE increased 1.26%. What Happened This Week? The S&P 500, Dow, and NASDAQ hit all-time highs: For the third straight week, the three major domestic indexes increased – and they all reached record highs. By market close on Friday, November 25, the S&P 500 was at 2,213.33, the Dow reached 19,152.14, and the NASDAQ was up to 5,398.92. Each of the indexes is now up over 7% for the year. U.S. Dollar/Euro move closer together: A combination of positive news in the United States and ongoing economic challenges in Europe have moved the dollar and euro increasingly closer together for the past three weeks. In fact, Deutsche Bank now predicts parity between the two currencies by the second quarter of 2017- and the dollar to be worth more than the euro by the third quarter. The two currencies have not had equal value since November 2002. At the euro’s highest in July 2008, it was worth more than 1.6 times as much as […]
November 22, 2016

Stocks Up, Fed Increase Likely

For the second straight week, the major domestic indexes all ended in positive territory: The S&P 500 was up 0.81%, the Dow increased 0.11%, and the NASDAQ added 1.61%. While American indexes performed well, MSCI EAFE’s international equities declined 1.58%. Stocks are up, fed increase likely. With the long, drawn-out presidential election behind us, investors are beginning to look past politics and pay closer attention to the economic fundamentals. As we’ve shared in recent market updates, the economy shows many signs of strength and growth. In the past few weeks alone: GDP beat expectations. Hourly earnings increased. The Dow reached an all-time high. New unemployment claims hit a 43-year low. Housing starts increased 25.5%. Of course, the economy is far from perfect – and growth is still slower than we’d like – but the overarching message is that the economy is doing well. Thus, we were not surprised this week when Federal Reserve Chair Janet Yellen said an interest rate hike “could well become appropriate relatively soon.” Despite what talking heads might warn on television, you should not be afraid of increasing interest rates. The last increase, which took place in December 2015, may have contributed to the volatility we experienced […]