Stocks Increase Slightly, Fed Raises Interest Rates
- Stocks rebound to a small gain this week
- As expected, the Fed increased the fed funds rate 0.25%
- North Korea in the news
After suffering their worst week of the year last week, both indices rebounded and increased slightly this week. The Dow gained 0.1% while the S&P 500 increased 0.2%.
The Federal Open Market Committee met this week and agreed to raise interest rates 0.25%. This was widely expected, but stocks managed to rally immediately following the announcement. The rally was broad-based with even utilities increasing. Utility stocks, given their high dividend yields, often sell-off when interest rates rise as the relative attraction of the dividend decreases. This suggests to me the market fully expected an increase and took the increase as a signal of a strengthening economy. Additionally, the comments from Janet Yellen suggested that two additional increases were likely this year. Some had speculated three more could happen this year and I think that reassured dividend investors that rates wouldn’t more too much higher in the near term. Read More
The US announced what appears to be a fairly significant change in policy to dealing with North Korea, although the news didn’t seem to impact markets today. North Korea has nuclear weapons, but doesn’t yet have the missile capability to reach the west coast of the United States. They have expressed a desire to do that and they repeatedly test missile launches in the Pacific Ocean. Last week, North Korea launched four ballistic missiles towards Japan, saying it was a test for attacking US forces in Japan. Secretary of State Rex Tillerson said this week that all options would be on the table if North Korea increases its threat, including a preemptive military strike. I don’t know what the long-range plan/solution is to North Korea, but I always assume these dictators want to talk tough, but also want to remain in power, which hopefully keeps the status quo going forward. There’s been very little geopolitical news impacting markets lately, but this is a situation to monitor. Read More
Oil bounced back this week, increasing 0.7% to close at $48.79/barrel. The yield on the 10-yr Treasury decreased, closing at 2.50%, from 2.58% a week ago. The average rate on a 30-yr mortgage extended a 2017 high, moving to 4.30% from 4.21% last week.
|10-yr Treasury (∆ in bps)||2.50||(7)||5|