Fed strikes a reasonable tone in today's guidance
"The day is finally upon us. It's been nine years since the last rate rise. Even though we knew it was coming, there was lots of tension in the days, and even hours, leading up to today’s FOMC decision. Domestically, the US economy is clearly ready for higher rates. However, due to global weakness (slipping commodity prices, low global growth), US credit and financial conditions continue to tighten - and this made some investors wonder if this day would end with Ms. Yellen announcing another delay.
The market seems pleased with the news. The FOMC struck a reasonable tone in its guidance while managing to stick to its guns on its expectation of steady rate hikes: four additional hikes in both 2016 and 2017. We currently expect one less hike next year with risks skewed to a slower pace than what we consider to be an optimistic path laid out by the FOMC. Not that we’re not optimistic, that’s just the nature of this cycle – a long, slow and steady climb back to “normal.”
- Jim Balfour, Senior Global Economist
Policy clarification helpful to stocks
"Today's rates announcement by the FOMC has been eagerly anticipated by equity investors for many quarters, if not years. While stocks have generated meager returns this year (S&P up less than 1% before dividends so far this year)[i], the Fed's policy clarification will please company management teams who have been craving more clarity from the Fed as they make their business plans for 2016 and beyond. We maintain a constructive outlook for stocks. In other words, we don’t expect rates to move up so much that it would significantly alter or disrupt business decision-making.
What are we watching now? We will be looking to see if the wide performance differentials between sectors continues into 2016. While the first part of the year often sees laggards from the prior year bounce higher, it will be fundamentals that determine the sustainability of stock performance given the many fundamental crosscurrents.
Stock pickers who thrived in 2015 were those who had exposure to winning sectors like consumer goods, and were also able to identify survivors in poor performing sectors like energy and commodities.
But let's be clear, although we are not able to predict what may happen in 2016, we still believe that this Fed move will do nothing to alter the tendency of stocks to bounce around as we enter 2016."
- Richard Skaggs, Senior Equity Strategist
[i] Source: S&P 500 Index
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