The Federal Reserve signaled it is “good-to-go” for an interest-rate increase next month. Investors are OK with that and sent the stock market roaring to its best weekly finish this year, up over 3%.
Mounting certainty that the Fed will finally raise rates next month, the first time in nearly a decade, bolstered investor confidence. A hike would indicate the Fed believes the economy is showing enough strength to justify monetary tightening.
More importantly, there’s a wide-ranging conviction now that the central bank will move slowly next year. U.S. stocks also received support from across the Atlantic, as European equities rose 3.3% on dovish rate talk Friday from European Central Bank President Mario Draghi that the central bank “won’t hesitate” to expand its monetary stimulus.
The Dow Jones Industrial Average jumped 3.4%, or 579 points, last week to 17,823.81, while the Standard & Poor’s 500 index gained 66 to 2089.17. The Nasdaq Composite advanced 3.6% to 5104.92.
After many weeks flip-flopping over whether a rate hike is a good thing for stocks, investors opted to celebrate what is typically a key market aspiration: certainty. Fed speakers last week were generally clear that a hike of the benchmark federal-funds rate is in the cards at the next meeting of the Federal Open Market Committee, Dec. 15-16. But Wednesday’s release of minutes of the previous FOMC meeting surprised equity markets and made the bulls happy.
Michael Arone, chief investment strategist at State Street Global Advisors, says the market took that to mean that “the Fed will be slow and gradual” when it comes to future tightening. “It was a relief to the fears of continual hikes,” he adds.
Raymond James chief investment strategist Jeffrey Saut says the market will be spurred on during the rest of 2015 by “performance anxiety,” that is, underperforming money managers trying to catch up and boost their annual return by buying during a traditionally bullish season for equities. History shows “it’s tough to put the equity market down in December,’ he notes.
(Source: Barrons Online)