Dovish Interest-Rate Talk Rallies Stocks
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
The major market averages drifted sideways for most of the trading day Thursday, as investors awaited the release of the minutes from the Federal Reserve FOMC meeting in September. Once investors digested the report, stock prices began a rally that continued into the last hour of trading, lifting the Standard & Poor’s 500 up by 0.88 percent and The Nasdaq Composite higher by 0.41 percent on the day. In spite of being overbought, the S&P 500 closed higher for the sixth day out of the past seven.
Stocks rallied as the dovish tone of the FOMC minutes put investors’ concerns over higher interest rates as ease, at least until the end of the year. The FOMC minutes also showed that central bank officials still had concerns with low inflation, which has yet to reach their 2.0 percent target for over the past three years. Some Fed members didn’t believe the 2.0 percent goal would be reached by the end of 2018. The market’s positive reaction on Thursday to the idea of a continuation of the current low-interest-rate environment appears to contradict those who last month were telling us the market would rally if the Fed would raise interest rates.
The seesaw in the stock market over the past week is being reflected in the bond market as well, with the recent strength of the stock market giving some investors reason to shift funds to higher-risk bonds. This week’s top-performing bonds are convertibles, with the Barclay’s U.S. Convertible securities index higher by 3.37 percent over the past five trading days, followed by the Barclay’s High Yield Very Liquid index, up 2.62 percent over the same period
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.