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In the Markets – Week-Ending December 16th

by Peter J. Creedon

Newsletter: In the Markets – Week-Ending December 16th 
Crystal Brook Advisors
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United States: Federal Reserve officials raised interest rates for the first time this year and forecast a steeper path for borrowing costs in 2017, saying inflation expectations have increased “considerably” and suggesting the labor market is tightening. The Federal Open Market Committee cited “realized and expected labor market conditions and inflation” in increasing its benchmark rate a quarter percentage point, according to a statement Wednesday following a two-day meeting in Washington. New projections show central bankers expect three quarter-point rate increases in 2017, up from the two seen in the previous forecasts in September, based on median estimates. (1)

Europe: The dollar surged to the highest since December 2002 against a basket of global currencies in overnight trading, taking the dollar index to 103.56 before easing to 102.88 as European trading kicked-off. (3) The consistent rise, linked to the U.S. Federal Reserve’s signaling of as many as three interest rate hikes in 2017, has taken its toll on asset prices all around the world and helped push the European single currency to its lowest level against the greenback in nearly 14 years. (3) Japan’s yen, as well, was also weakened by the dollar’s rise, taking the currency to 118.03, the lowest since February, and helping the export-focused Nikkei 225 to its eighth consecutive gain. The benchmark added 0.7% to hit a 2016 of 19,401.15, capping a five-day advance of 2.1%. The broadest measure of regional shares outside of Japan, however, the MSCI Asia Ex-Japan Index, has lost around 1.7% this week in the wake of the dollar’s resurgence. (3)

Asia: Asian shares turned positive on Friday as currency swings captured attention with the yuan midpoint fixed at its lowest against the dollar since May 2008 and Japan stocks up slightly on recent yen weakness.The People Bank of China set the daily yuan mid-point fix at 6.9508 versus its last close at 6.9478. The yuan fetched 6.9466 per dollar as of 3:10 pm HK/SIN. (2)

Latin America: Mexico’s peso strengthened on Thursday after the country’s central bank hiked its benchmark interest rate more than expected in a bid to ease pressure on the currency and slow inflation following the U.S. election victory of Donald Trump. The Banco de Mexico hiked its benchmark interest rate by 50 basis points to 5.75 percent, above the median forecast in a Reuters poll of economists, taking it to its highest level since April 2009. The peso reversed losses on the announcement, before closing at 20.33 pesos per dollar, up about 0.7 percent. The central bank has raised rates five times this year, lifting borrowing costs by a total of 250 basis points. (5)

Monday 12/12
  • Stocks closed mixed Monday as the Dow hit a new all-time high and as oil prices jumped after several non-OPEC countries agreed to join the cartel in cutting output and as investors focused on interest rates. The S&P 500 and Nasdaq snapped 6-day winning streaks and retreated from record highs. (4)
Tuesday 12/13
  • The Dow closed at a record, rising more than 100 points, with IBM, Apple and Home Depot contributing the most gains. The S&P 500 also ended at an all-time high, rising 0.6 percent, with energy and information technology leading advancers. The Nasdaq composite outperformed, advancing 0.9 percent to a new all-time high. (2)
  • Overseas, European equities traded higher, with the pan-European Stoxx 600 index rising 1.06 percent. In Asia, stocks closed mixed as the Shanghai composite advanced just 0.08 percent and the Nikkei 225 rose 0.5 percent. (2)
Wednesday 12/14
  • The Dow ended down nearly 120 points to 19793 after seven straight record closes. The S&P 500 fell 0.8% to 2253. The Nasdaq composite dropped 0.5% to 5437. (6)
  • The Federal Reserve said Wednesday it would raise its benchmark short-term interest rate, and expects to lift it more quickly than previously projected in 2017 amid signs of low unemployment, firming inflation and a pickup in economic growth. (6)
  • Fed officials said they would nudge up the federal-funds rate by a quarter percentage point on Thursday, to between 0.50% and 0.75%, a move that could cause other household and business borrowing costs to rise as well. (6)
Thursday 12/15
  • After a pullback following the Fed decision Wednesday, stock-market indexes resumed their post-election march higher. The Dow Jones Industrial Average DJIA, +0.30%  rose 59.71 points, or 0.3%, to close at 19,852.24, after being up by as many as 159 points earlier in the session and less than 50 points from the psychologically important 20,000 level. Shares of DuPont DD, +1.60%P. Morgan Chase & Co. JPM, +1.50%  and Goldman Sachs Group Inc. GS, +1.28%  led gainers. (7)
Friday 12/16
  • U.S. stocks traded lower Friday, with the Dow industrials swinging to a loss following reports that a Chinese warship seized an underwater U.S. Navy drone in international waters off the coast of the Philippines. Even as the Dow was curtailed from its advance to the psychologically important 20,000 level, the blue-chip average is still on track for its longest weekly winning streak, at six, in more than a year. (7)

Market Close

U.S. stocks fell on Friday, weighed by a more than 4-percent drop in Oracle shares, while recently-battered stocks in the real estate and utilities sectors posted the largest gains. The Dow Jones industrial average fell 8.32 points, or 0.04 percent, to 19,843.92, the S&P 500 lost 3.97 points, or 0.18 percent, to 2,258.06 and the Nasdaq Composite dropped 19.69 points, or 0.36 percent, to 5,437.16. (5)

Contributor: Thomas Padula

Sources:  (1), Bloomberg (2),CNBC  (3),The Street (4), USA Today  (5), Reuters (6), Wall Street Journal (7), Market Watch