It appears that traders are willing to accept a short-term rate hike over the next month or so, as equities climbed on the week. Fed Chair Janet Yellen once again changed her tune and now says that an increase in interest rates “is appropriate”. Her comment echoed a number of Federal Reserve presidents who also share her view that the economy is strong enough to absorb more normalized interest rates. Hence, the odds are now near 60% that we will see a move higher at either the June or July meeting. Equities on average moved higher by over 2% the past week, as seen in the Dow Industrials and the S&P 500. The NASDAQ and the small cap Russell2000 moved higher by 3.4%. And all the major market sectors were positive, led by technology and financials. Even interest-sensitive utilities and telecom stocks were in the green by 1.2% and 1.5%, respectively.
Oil prices rose for the week, with crude futures briefly jumping above $50/bbl. for the first time in seven months before settling the week at $49.33. In other economic news, new home sales rose to its highest level since January, 2008 and existing home contracts hit its highest level in a decade. Durable goods orders also jumped 3.4% in April. Gold traders continued to take profits with the prospect of higher interest rates, however, and the yellow metal lost over 3% on the week, closing on Friday at $1213.80/oz. Despite widespread popular belief of a strong negative correlation between higher interest rates and a lower price of gold, over the long-term no such relationship actually exists. Bonds and dividend related stocks, however, may remain under pressure as interest rates creep up.
U.S. markets will be closed on Monday in observance of the Memorial Day holiday. Looking ahead, the Federal Reserve releases the so-called beige book results of regional economic conditions on Wednesday and Friday, U.S. non-farm payrolls will be reported, with estimates of a rise to 155,000 new jobs for May. The bull market is now seven years old and, not surprisingly, growing tired. While the easy money has been made, holdings in high-quality, dividend growing investments is still the best road to take. In the meantime, continue to enjoy the long weekend.
Here is the answer to last week’s trivia question: The ARCO gasoline station brand was purchased from BP, plc in 2013 by Tesoro Corp. and operates exclusively on the west coast. ARCO was originally? Atlantic Richfield Co.; Amalgamated-Rundell Petroleum Corp.; Appalachian Refining & Chemical Co.; or American Refining Company. Answer: Atlantic Richfield Co. The ARCO refinery and chemical operation located in Channelview, Texas is now owned and operated by aggressive portfolio choice LydonellBasell Industries.
Today’s Trivia Question: The first Chick-fil-A opened in 1967, in the food court of the Greenbriar Mall in suburban Atlanta. Chick-fil-A is? Owned by Cerberus Capital Management; Publicly traded on the NASDAQ under the ticker symbol CHIK; a unit of Dine Equity; or Privately held.