FED Hikes Interest Rates
As of last week, Janet Yellen and the members of the Federal Reserve Open Market Committee (FOMC) voted to increase short term interest rates by 25 basis points. This increases the target federal funds rate from .5 percent to .75 percent (Federal Reserve). According to a statement released by the Fed Reserve, the governors unanimously voted in favor of the hike. Analysts where quite certain leading up to the decision on December 14th with Bloomberg projecting a 99 percent change in the Fed Rate (Whiteaker).
Reasons for the rate hike seemed to be in line with their previous remarks leading up to their decision (Federal Reserve). One of the major highlights for the decision was the labor market pressure on inflation (Federal Reserve). The other major highlight was full employment (Federal Reserve). These highlights are in tune with their prevailing policy guidelines, yet hesitations seem to persist amongst the governors on future rate hikes.
Minutes on the meeting will be released in the first week of January 2017. The next FOMC meeting is January 27-28, 2017.
Yearly Performance across Sectors
When we look at 2016, the picture seems to post the market in a pretty rosy light. As of December 21, 8 out of 10 sectors have increased since January 1st. The largest sector gainers are energy and financials. The two worst performing sectors were health care and real estate. The overall S&P 500 has seen an 11.10 percent increase since January 1st.
This picture for 2016, in particular, has more depth from telling how strong 2016 was for many industries. In 2015, 4 out of 10 sectors were positive sectors for that year, and their minimal contribution pushed the S&P 500 slightly positive in 2015 (Sector SPDR).
Reasons for such a strong 2016 pertain to a couple a major favorable conditions. In the energy sector, oil started to march upward because of crude targeting around $50-60 per barrel by the end of 2016 (Sharples). Although energy has had a strong year, it was down 10% in the first quarter of the year (Sharples). Technology continues to have a strong year with continual improvement in product lines and steady profit margins. Revenue may not have improved considerably in this sector compared to previous years, yet considerable margins allow for steady stock increases. Financials may be the darling this year with favorable conditions going forward due to increased interest rates and subsided regulatory pressures.
With roses in the market, there are thorns on the vine. The real estate sector may have major headwinds in the domestic market with the rising interest rate environment, yet new housing developments have continued on a steady accent. Healthcare is the black box compared to other sectors. This sector has considerable mysteries due to regulatory issues which in part makes it highly subject to downward market pressures.
As the candle begins to flicker out for 2016, new opportunities and challenges will be present for the domestic market in 2017.
Compiled by the Camelot Portfolios Investment Committee
Darren Munn, CFA, Chief Investment Officer
Sarah Berndt, Portfolio Manager
Eric Kartman, Research
Matthew Moses, CAP®, President
Drew Steinman, CPA, Trader/Research
Frank Echelmeyer, MBA, CKA®, Advisor Consultant
-for Broker/Dealer and RIA use only-
Federal Reserve. Press Release. 14 Dec 2016. 2016.
Sector SPDR. Sector Returns. 30 Sep 2016. 2016.
Sharples, Ben. Oil Prices Could Jump 50% by the End of 2016. 2 February 2016. 2016.
Whiteaker, Chloe. When Will The Fed Raise its interest rate? 11 Dec 2016. 2016.
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