As widely anticipated, earlier this week the Federal Reserve increased its target for short-term interest rates by 0.25% (from 0.25% to 0.50%).  The move was well telegraphed – prior to Wednesday’s meeting, the market (Fed Funds futures) were pricing in a near 100% chance the rate hike would happen. What remains uncertain though is the Fed’s path for rate hikes in 2017. What does all of this mean for bonds?  After all, when interest rates go up, bond prices go down. 

The Small Cap rally is no turkey. In the two weeks since the U.S. presidential election we have seen wide swings in different areas of the financial markets, but one of the clear winners has been U.S. Small Cap stocks.  Why have they “trumped” the performance of other asset classes?

On Monday we wrote Wall Street wanted Hillary to be President…and that was clearly true at the beginning of the week through about 2:00 a.m. on Wednesday morning.  As election results came in and states were being “called,” the Dow Jones Industrial Average was down as much as -850 points in the overnight session as it became clear Donald Trump would become President of the United States. Two days do not make a market trend, but we share some of our key observations from actions in various areas of the market the last two days since Trump was named as President-elect.

Earlier this week an article from Bloomberg.com titled “The Next 10 Years Will Be Ugly for Your 401(k)” circulated on Apple news. The article is based on research from California-based Research Affiliates and concludes that in an environment of low interest rates for U.S. bonds and high valuations for U.S. stocks, the outlook for future returns from those asset classes is low. Specifically, the article goes on to state that an investor has a 0% chance of earning a real (after inflation) annualized return of 5% over the next 10 years. Our team shares three main thoughts in regard to this article.

Earlier this week a member of our investment team, Aaron Filbeck, attended JPMorgan’s two-day Wealth Management Summit in New York City. The Summit was a chance to meet with JPMorgan’s portfolio management teams, dig into investment processes, and discuss the current state of the markets. In addition to hearing from fund managers, Aaron also had the opportunity to attend a presentation and Q&A session with Jamie Dimon, JPMorgan’s Chief Executive Officer.

Yesterday a client asked, “Why was the market down today?”  Our response was “Because it’s October.” The response was not mean to be flippant – October is a month notorious for market volatility. We share with you today a graph reflecting the S&P 500 historical seasonal pattern along with an interesting chart displaying the S&P 500 average performance in presidential election years. 

This past weekend, an article appeared in The Columbus Dispatch written by Todd Walter, Client Advisor and Director of Advisory Services at The Joseph Group. In case you missed it, Todd discussed the work of Senator William Roth, a legislative sponsor of the Taxpayer Relief Act of 1997. That legislation produced one of the great financial planning tools of this generation – the Roth IRA. Today we share with you the many benefits of a Roth IRA, applicable to individuals throughout all stages of life.

Earlier this week the Federal Reserve voted to keep short term interest rates unchanged from their current target range of (0.25% to 0.50%).  The market reaction to the “hold” was positive as stocks, bonds, real estate and commodities all rallied after the Fed’s announcement on Wednesday and continued to rally on Thursday.  The market clearly likes the idea of low interest rates continuing to stimulate the economy – the Fed is not taking away the punch bowl yet.

Earlier today, a voting member of the U.S. Federal Reserve (Boston Fed President Eric Rosengren) made statements which created a strong market reaction.  According to Rosengren, the Fed believes continuing to keep interest rates low may present “longer-term risks from significantly overshooting the economy’s growth.”  As a result he stated “a reasonable case can be made for continuing to pursue a gradual normalization in monetary policy.” Members of the Fed seem to always speak in confusing sentences and big words, but to the financial markets, Rosengren’s words meant one thing…

With stock indexes hitting new highs this week, it is worth taking a closer look at what areas are leading the U.S. stock market.  The stocks leading the market during the last six to seven months are very different than the stocks which led the market last year. It may take an increase in interest rates for market leadership to shift again, but when it comes to valuations, there is risk that FANG may bite back against the RUST.