Fed signals “maybe”on four interest rate hikes in 2018 but stocks stabilize anyway after yesterday’s drop
As expected the Federal Reserve left interest rates unchanged today. But in its post-meeting statement the central bank added language that Fed watchers thought indicated four interest rate increases in 2018 rather than three. That language was enough to put the brakes on a good start to the day for stocks. The Standard & Poor’s 500, for example, dropped from 2832.94 at 2 p.m. New York time to 2813.45 at 2:50 on the Fed’s statement.
When I started my Volatility Portfolio back in January 2017, I really didn’t have much more in mind than a conviction that in this market traders and investors and traders could score market beating returns from taking advantage of market and economic volatility. I didn’t narrow my approach to volatility to one or two aspects or markets, but instead followed a wide menu approach to volatility as a characteristic stretching across markets from real estate to bonds to education to stocks. That menu as based on the research I’d done for my February 2016 book Juggling with Knives: Smart Investing in the Coming Age of Volatility. Certainly the return on this portfolio for its first year of operation confirm this wide-menu approach. The portfolio showed a total return of 53.06%–assuming equal initial weightings in each position–as of December 31, 2017. That qualifies, I’d say, as beating the market in 2017. The total return on the Standard & Poor’s 500 stock index was 21.64% in 2017. But in that first year of operation I found a more focused goal for the Volatility Portfolio too.
The march to a yield of 2.7% on the 10-year Treasury has set off nervous market chatter–and a retreat in stock prices today
When is high too high? The U.S. stock market has been a real champ at sailing past the prospect of higher interest rates to new high after new high. But the march of the yield on the 10-year U.S. Treasury has led to a pause for thought among traders and investors. The yield on the 10-year climbed to 2.71% this morning.
In my daily trawling through the market I come upon lots of tidbits of knowledge that I think are important to investors but that don’t justify a full post. I’ve decided to start compiling these notes here each day in a kind of running mini blog that I’m calling Notes You Need. A typical entry would resemble this from today: “10:20 a.m.: Apple (AAPL) shares down 2% this morning on news reports out of Japan that the company will lower iPhone X production volume by 50% in the first quarter of calendar 2018. The stories see that Apple has notified suppliers that it will cut production for January-March quarter to 20 million units for the iPhone X instead of the 40 million units projected at the phone’s November release. Apple reports earnings after the market close on Wednesday, February 1.”
Last week we saw Treasury bond prices fall and their yields rise on weakness in the U.S. dollar. Today the dollar is stronger–up 0.31% on the Dollar Spot Index–but bond prices have still stumbled and yields on the 10-year Treasury have climbed to 2.7%, the highest level since early 2014.
What seems to be driving this dynamic is fear in the bond markets of end of the week data on the jobs market.
Here we go again on infrastructure. The thinking when Donald Trump was sworn in as president just about a year ago was that a sweeping infrastructure package would be quickly introduced into Congress by the administration. Such a proposal was one of the few issues where the new president could possibly win Democratic support. Well, its a year later and no infrastructure bill has moved from the White House to Capital Hill–to the chagrin of investors who (and I was one of them) snapped up a stock or two or three in anticipation of hundreds of billions of dollars of investment in roads, airports, trains water systems, and the like. But now it looks like the President will really, truly, actually introduce an infrastructure spending proposal in Tuesday night’s State of the Union address.
So much news. And so much that has the potential to move the financial markets. Let’s start on the economic side, ok? Monday we get reports on personal income and inflation. And on the earnings side? Lots and lots of reports that could change the tone of this market. The biggest are Microsoft, (MSFT), PayPal (PYPL) and Facebook (FB) on Wednesday January 31 and then Alphabet (GOOG), Apple (AAPL) and Amazon (AMZN) on Thursday, February 1.