With little surprise, the Federal Reserve moved short-term interest rates higher by 0.25% for the first time in a year and said it intends to raise three more times next year. That is what they said last December. However, with the economy showing some signs of improvement aided by solid data on jobs, incomes, personal spending and consumer sentiment, the hawkish prospects appear quite likely this time around. Thanks, in part, to a new administration, a rebound in energy prices, impending tax cuts as well as infrastructure and capital spending expansion, GDP will likely grow above 2% for next year and into 2018, and the Fed will be forced to temper inflation while not impeding economic growth.
Wall Street took the news in stride after an initial negative reaction to the possibility of aggressive rate hikes next year. Markets, approaching all-time highs, were little changed and mostly mixed with the Dow inching up and small declines in the S&P 500 and NASDAQ. Transportation stocks took a breather after a hefty run-up over the past few weeks. Oil paused as well, ending lower for the week and settling at $51.90/bbl. As we close out the year, there are still things that bear watching: President-elect Trump’s economic and tax proposals; the effect of interest rate hikes on equities; Europe’s growth outlook in the wake of Brexit; a slowdown in China; the implications of trade barriers and energy prices.
For now, however, the rally remains alive and well and it is difficult to fight the tape, as they say. The Dow Industrials are headed for 20,000 and the NASDAQ to 5,500 and may encounter some resistance at some point. Tax maneuvering at year-end can also shake markets, particularly in stocks that had some big moves this past year. I remain cautiously optimistic, however, and would recommend investors stick with their long-term investment strategy.
Here is the answer to last week’s trivia question: What was the first all-financial cable news channel? CNBC, Bloomberg Television, Financial News Network or Fox Business News. Answer: Financial News Network (FNN) launched in 1981. After encountering serious financial difficulties, FNN was purchased by NBC in May, 1991 and merged its operations with rival CNBC.
Today’s Trivia Question: Founded in Rochester, NY in 1853 optical company Bausch+Lomb is: A division of Milan-based Luxottica; Publicly held and trades on the NYSE; owned by private equity firm Warburg-Pincus; or a unit of Valeant Pharmaceuticals.