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December 14, 2016

Another week, another set of record closes for the S&P 500.  The most widely followed stock index in the investment world reached new highs on the final 3 trading days of the week, finishing up +12.9% YTD (total return).  The S&P 500 has now set 17 record closes this year, 125 in total during this 7 ¾ year bull market run.  But as stocks have been climbing, so have interest rates.  The yield on the 10-year Treasury note closed the week at 2.47%, up from 1.83% just 5 weeks ago and up more than 1 percentage point since falling to an all-time low of 1.36% in early July 2016 (source: BTN Research).

If the 97% probability (per last week’s futures market) that the Fed will raise short-term rates after its 2-day meeting this upcoming week follows the track of the other “locks” in 2016 (i.e., Brexit failing, Senator Clinton winning), then maybe we won’t see a rate hike later this week.  But if the Fed does follow the commonly held belief, they will raise rates (at their final 2016 meeting) and they may provide insight to global bond investors as to the likely path that interest rates may take in the years to come.  The last Fed rate hike took place a year ago on 12/16/15 (source: Federal Reserve).

If the USA is raising interest rates, the European Central Bank (i.e., the Federal Reserve of the 19-nation Eurozone) is going in the other direction.  The ECB announced last week that it will extend its monetary stimulus program (which originally began in March 2015) by 9 months to December 2017.  Their plan, patterned after the Fed’s 6-year “quantitative easing” program, is designed to keep government bond yields down to encourage European borrowing and investing (source: BTN Research).


Notable Numbers

THE FED – The 7 members of the Fed’s Board of Governors are nominated by the President and confirmed by the Senate.  The group has functioned with just 5 members since late May 2014.  Incoming President Trump hopes to fill the 2 vacant positions (source: Federal Reserve).

HIS PARTY – Republican Donald Trump will begin his first term as President with a Republican majority in the Senate and the House, the first Republican to enjoy that level of Congressional support at the beginning of his first term in office since Dwight Eisenhower in 1953 (source: Congress).

BAD GUESS – In January 2007, the Congressional Budget Office’s “10-year Projection” forecasted budget surpluses for 5 consecutive years beginning in fiscal year 2012 (i.e., years 2012-16) totaling $914 billion.  Instead the actual deficits over fiscal years 2012-16 were a combined $3.3 trillion (source: CBO).

I’VE HAD ENOUGH – 69% of workers retire by age 65, but only 5% of workers retire before age 55 (source: Census Bureau).

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