The Federal Reserve put a hitch in the markets' giddy-up last week.
It wasn't the Fed's second interest rate hike in a decade that caused markets to stumble. December's rate hike was old news before it happened. In mid-December, Reuters reported Fed funds futures indicated there was a 97 percent probability the Fed would raise rates one-quarter percent at its December Federal Open Market Committee (FOMC) meeting. In addition, all 120 economists polled by Reuters agreed rates were headed higher.
It was the dot plot - a chart showing FOMC members' assessments of appropriate monetary policy going forward - that unsettled investors. Barron's explained:
"The market, however, was surprised when the Fed turned ever-so more hawkish, with its "dot plot" indicating three rate hikes next year, up from two. Still, stocks handled the news better than might be expected, with the Standard & Poor's 500 index dropping 0.8 percent immediately following the announcement but still finishing the week down just 0.1 percent to 2258.07. The NASDAQ Composite fell 0.1 percent to 5437.16, while the Dow Jones Industrial Average gained 86.56 points, or 0.4 percent, to 19843.41, its sixth consecutive winning week."
Bond market investors weren't too happy last week, either. The yield on 10-year Treasury notes has nearly doubled during the past five months, rising from 1.36 percent to 2.6 percent. When bond rates move higher, bond prices move lower.
If there is a silver lining for bond investors, it may be some specialists believe changes in Treasury rates will be modest during 2017. Barron's reported, "For what it's worth, the 10 firms surveyed in our Outlook 2017 see the 10-year yield at 2.69 percent late next year, just a tad above today's level."
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Data as of 12/16/16
|
1-Week
|
Y-T-D
|
1-Year
|
3-Year
|
5-Year
|
10-Year
|
|
Standard & Poor's 500 (Domestic Stocks)
|
-0.1%
|
10.5%
|
8.9%
|
8.1%
|
13.1%
|
4.7%
|
|
Dow Jones Global ex-U.S.
|
-1.0
|
1.0
|
1.9
|
-2.7
|
3.3
|
-1.3
|
|
10-year Treasury Note (Yield Only)
|
2.6
|
NA
|
2.3
|
2.9
|
1.9
|
4.6
|
|
Gold (per ounce)
|
-2.8
|
6.5
|
5.2
|
-2.9
|
-6.6
|
6.3
|
|
Bloomberg Commodity Index
|
-1.2
|
10.9
|
13.0
|
-11.7
|
-8.7
|
-6.3
|
|
DJ Equity All REIT Total Return Index
|
-0.5
|
7.2
|
7.6
|
12.9
|
12.4
|
5.0
|
S&P 500, Dow Jones Global ex-US, Gold, Bloomberg Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT Total Return Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable.
