Stocks Bullish Despite Rate-hike Aftershock
By Laif Meidell, CMT, President of American Wealth Management, and Portfolio Manager of the AdvisorShares Meidell Tactical Advantage ETF (NYSE Arca: MATH) and the AdvisorShares Market Adaptive Unconstrained Income ETF (NASDAQ: MAUI)
Tensions were high in both the stock and bond markets on Wednesday as investors anxiously awaited the official release of the Federal Open Market Committee federal funds rate announcement, to include guidance on the timing of future rate hikes. Stocks lurched higher at the opening bell, then retreated to their starting prices in the first half of the trading day, like Olympic sprinters returning to their starting blocks after a false start.
The Fed has spent the last few months leaving a trail of messages, like of bread crumbs, for investors to follow in order to be as transparent as possible. Investors had deciphered over the past couple of weeks that there was a high probability the Fed would raise interest rates this month by 0.25 percent, and the Fed didn’t disappoint on Wednesday with a unanimous vote of 10-0. In it message, the Fed cited “considerable” improvements in the labor market and indicated that it is “reasonably confident” that, in the medium term, inflation will rise to its 2.0 percent target as energy prices and import prices rise.
Following the news, stocks staggered higher and lower for the next 45 minutes as stock trading programs attempted to exploit any short-term movements in the market. However, the bulls won the day, driving stocks higher across the board with the Standard & Poor’s 500 up 1.45 percent and the Nasdaq Composite gaining 1.52 percent on the day.
Although Wednesday’s rate increase is cited as the “liftoff” for interest rates, the Fed indicated it expects a gradual rate increase in the future and for interest rates to remain below the long-term levels for some time.
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.