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 […]
September 20, 2016
April Jobs Report Shows Slower Pace of Growth

After Summer Slumber, Volatility is Back

WEEKLY UPDATE – SEPTEMBER 19, 2016 This article is about Volatility is Back. After Summer Slumber, Volatility is Back, Volatility picked up last week due to pressures from lower oil prices and speculation about the timing of the Federal Reserve’s next rate hike. This summer has been historically calm for markets, leading markets to trade without big intraday gains or losses.[1] However, Friday broke that streak, possibly ushering in a period of greater volatility as uncertainty looms. For the week, the S&P 500 gained 0.53%, the Dow grew 0.21%, the NASDAQ added 2.31%, but the MSCI EAFE dropped 2.49%.[2] After Summer Slumber, Volatility is Back The market is facing a dilemma based on mixed information and an uncertain political landscape. On the one hand, economic data is neither weak nor strong enough to make the choice to raise interest rates easy for policymakers. On the other hand, the unpredictable nature of the presidential race contributes to market volatility. Though Fed economists have repeatedly stated their intentions to raise rates soon, no one is certain about the timing of this hike. The Federal Reserve’s Open Market Committee will meet this week to decide whether or not to raise interest rates for the […]
September 13, 2016

Stocks Drop on Interest Rate Worries

Stocks Drop on Interest Rate Worries (WEEKLY UPDATE – SEPTEMBER 12, 2016) Stocks Drop on Interest Rate Worries, After trading flat for most of the week, stocks broadly sank Friday on fears of a future rate hike. For the week, the S&P 500 lost 2.39%, the Dow fell 2.20%, the NASDAQ dropped 2.36%, and the MSCI EAFE lost 0.16%.[1] Monetary policy was at the forefront of investors’ minds last week as they continue to calculate the odds of an interest rate increase ahead of the September Federal Reserve’s Open Market Committee (FOMC) meeting. The European Central Bank (ECB) declined to increase its stimulus program, voting to stand pat on interest rates and current bond-buying activity. The decision wasn’t a total surprise as the Eurozone economy has proved resilient after Britain voted to exit the EU. However, the ECB did confirm that it will consider further quantitative easing in 2017 if conditions worsen.[2]  No exit date for Britain has been announced, though the new prime minister has indicated it will not begin before next year.[3] On our side of the Atlantic, surprise comments by a voting member of the Fed increased speculation that a rate hike may come this month.[4]  When […]