While the stock market may have run out of steam on Friday afternoon, the declines in the major indices were not all that bad. Banks and small-cap stocks have had a great post-election run, and the small-cap Russell 2000 alone is up more than 8% since election day. For the week, the Dow rose 0.1%, the Nasdaq gained 1.6%, and the S&P 500 added 0.8%. The Russell 2000 has risen 11-straight days, and hit an all-time high this week, so seeing the smaller stocks soar has bulls thinking that the major indices could soon join the upside party.
Janet Yellen once again hinted this week at a December rate hike, but with so much advanced notice of a December interest rate hike, the Fed has definitely done a great job in “telegraphing” its rate hike in advance. It has been a YEAR since the last Fed rate hike, and it has been so long that investors seem ready, willing and able to handle a quarter-point rate hike. U.S. and global bonds have been hit hard following last week’s election, and the 10-year U.S. Treasury finished the week with its yield at 2.34%, so maybe this move is “telegraphing” a Fed rate hike as well.
The positive for the stock market is that the major indices are at or near all-time highs, which could provide a much-needed buffer IF we see a market “tantrum” following a Fed rate hike in December. Housing numbers have been strong, weekly jobless claims are at their lowest levels in decades, and the economic numbers we continue to see are not all that bad. As we have said, if there is a smart time for the Fed to raise rates, December would certainly make a lot of sense. The uncertainty about the Presidential election is behind us, so the stock market should be able to handle a rate hike.
Higher interest rates would greatly help insurance companies, regional banks and regular savers (CDs and money market accounts) who have been squeezed for years by near-zero interest rates. The whole ZIRP and NIRP policies by central banks around the world were supposed to be temporary following the 2008-09 economic meltdown. So maybe it is finally time, after eight years, to reverse those “temporary” solutions to the worst economic collapse since the Great Depression. You can always count on a Central Bank to have a “temporary” solution that ends up lasting eight years.
As for Janet Yellen, she is planning to serve out her term which runs through January of 2018, and that is a plus for the stock market since the last thing we need right now is to have a Fed Chairman resign or be replaced. The December rate hike that the Fed Heads have kept suggesting could actually help rebuild confidence in the economy, the stock market and the Federal Reserve itself. We shall see how the December meeting plays out, but a quick rate hike seems like a good way to head into 2017.
Thanksgiving is next week, so trading action should remain fairly calm and quiet, and we could very easily see new highs for the major indices. The rally we have seen since the election has been calm and cool, and given the time of year, most bulls are optimistic that we will see more upside into the New Year. The November jobs report that we get in early December, if it is decent, should help the Fed make its final decision on the December rate hike that it seems to be so anxious to put in place.
That said, the Gorilla wishes each and all a relaxing and restful weekend. There are a lot of college football games that will determine many of the bowl games (35?) for the end of the year and New Years, so enjoy! We will be back in action on Monday, and we will have the Gorilla’s banana stuffing recipe out to you next week.
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