Camelot Portfolios Talking Points

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.

Source: sectorsspdr.com

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-

References

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.

 Disclosure

 The materials presented is for use by professional advisors only.  It is not intended as informational and educational, and is not intended to be interpreted as investment advice.  The references to specific investment ideas, be they concepts, trends, sectors or even specific securities, are not recommendations for any advisor to adopt for any of their clients.  No investor or client reading these materials should view them as investment advice.  These materials are to be utilized as a catalyst for thought and discussion regarding the economy, investments, and responsible investing in general.  Past performance is not necessarily indicative of future returns, and there is no guarantee that any information presented herein will contribute to a profitable portfolio.  All facts referenced herein are derived from sources believed to be reliable. 

Any charts, graphs, or visual aids presented herein are intended to demonstrate concepts more fully discussed in the text of this brochure, and which cannot be fully explained without the assistance of a professional from Camelot Portfolios LLC.  Readers should not in any way interpret these visual aids as a device with which to ascertain investment decisions or an investment approach.  Only your professional adviser should interpret this information.  A329