Traders can’t seem to decide whether a 0.25% interest rate hike is welcomed or not. At first, it appeared as if the markets were taking the first increase in the Fed’s Fund rate in nine years in stride as the market rose decisively on Wednesday following the announcement. Subsequently, the reaction has gotten bumpier. Friday, the Dow lost over 2% as commodity stocks, energy prices and corporate bonds sold off. Signals from Chair Janet Yellen have been mixed, citing that the pace of rate hikes would be gradual but also hinting of four more rate increase next year. There is still much controversy as to whether the economy was indeed ripe for a rate hike. True employment and housing starts have been trending higher, but low inflation, weak manufacturing numbers and global headwinds are still with us. For the week, crude oil lost 2.5% to $34.73/bbl., the third consecutive weekly drop and a 52-week low and taking energy stocks lower by 1.5% on average. The Dow Industrials ended the rocky week off 137 points or 0.8%. The S&P gave up only 0.34% when all was over and the NASDAQ about 0.25%. Trading volume picked up and there were 793 new 52-week lows set last week vs. only 78 new highs. Safe haven – and interest sensitive – utilities and telecom stocks were the strongest performers, up 2.8% and 1.3%, respectively. Basic material stocks took at 3% hit with few traders willing to bottom feed at current depressed prices. The remainder of the year will probably stay volatile as investors look to take tax losses on some of their holdings before year-end. That being said, those shares of underperforming stocks for the past year will probably be coming under additional selling pressure. Stocks are still not cheap, but with the fundamentals fairly strong, the equity market likely can hold its own in the year upcoming if traders don’t continue to obsess over interest rates and concentrate on fundamentals.
Here is the answer to last week’s trivia question: Activist investor Carl Ichan revealed a 7.1% stake in which storied company that has struggled to adapt? Xerox Corp., Arch Coal, Polaroid Corp., or Avon Products. Answer: Xerox Corp.
Today’s Trivia Question: Which aircraft company, that hasn’t’ developed a strike aircraft since the last B-2 in 1997, recently won a lucrative contract to build the Air Force’s next generation bomber? Lockheed-Martin, Boeing, Northrop-Grumman or General Dynamics.