The stock market rose last week in mostly humdrum trading, but closed off mid-week highs, restrained by the growing likelihood that the Federal Reserve will raise interest rates in a matter of weeks.
A nearly 2% rise by Wednesday began to fade after Fed Chair Janet Yellen said that a hike was a “live possibility” for the Dec. 15-16 Federal Open Market Committee meeting. The FOMC decides the key benchmark federal-funds rate, the overnight rate depository institutions use to lend to each other on Fed balances.
Strong jobs data Friday, which should help push the Fed to hike, dampened spirits some more, but stocks still managed a healthy 1% rise for the week. Financials rallied 2.7% on the rate sentiment, while the high-dividend-paying utility and telecom sectors fell 3.6% and 1.6%, respectively.
The Dow Jones Industrial Average rose 1.4% or 247 points last week to 17,910.33, while the Standard & Poor’s 500 index added 20 to 2099.20. The Nasdaq Composite gained 1.9% last week to 5147.12.
The jobs data was a “game changer” in terms of increasing the probability of a Fed rate hike next month, says Michael Sheldon, chief market strategist at RDM Financial Group. “It was solid across the board,” he adds. Friday, the Labor Department said October payrolls grew by 271,000, above expectations of 185,000, and that the unemployment rate fell to 5% from 5.1%. Average and weekly earnings were up nicely, too.
Below the headline jobs data, there were changes that point to some winning sectors in the near term, Kinahan says. Jobs grew in the retail and financial sectors, so retail, restaurants and bank stocks could be winners, he says.
Meanwhile, “bond proxies,” such as utilities, telecom, and some high-dividend, low-growth staples stocks will face some head winds. “You could see pressure on them building up,” he says.
“We are likely at the beginning of a rate- cycle tightening,” says RDM’s Shelton. The market will soon be considering what happens after the first hike. Is it one-and-done for a while, or will the Fed raise rates faster than the market expects? Sheldon sees markets choppy in the near term.
(Source: Barrons Online)