This Is What It Looks like When “Doves Hikes” – Market Takes Telegraphed Quarter Point Raise in Stri

By C. Jonathan Camarda
CMT®, CPWA®, CFP®, ChFC®, CLU®, CFS®, BCM®

The Federal Reserve—big surprise—finally pulled the trigger on the much anticipated rate hike. The delivery was pitch perfect to investors and traders alike. The dovish tone was prevalent in Janet Yellen’s speech. Of course, given the backdrop of rates still being extraordinarily low from a historic perspective, dividend stocks can continue to thrive. In fact, post hike Utilities and REITs jumped somewhat unexpectedly (usually higher yield instruments do not act well in a rising interest rate environment). There was a consensus that this would be one of the tamest tightening in recent history.

This was the first rate increase since June 2006, and it was good to see a positive reaction by the market. Perhaps, given the “head fakes” by the Fed earlier this fall made this a surprising as feeling like a frozen sardine at Time Square watching the ball drop on New Year’s Eve. I was watching prime rates and sure enough, a few of the larger banks cranked them up in the mid-“3”s (3.5). The market essentially knew the hike was imminent; however, as long as it was delivered with white, satin gloves as opposed by a hawkish hammer, it just resumed the upside move. In fact, if the Fed didn’t execute this move, it would have raised suspicion on its economic outlook—as if to say “what do you know that we don’t”? Thus, this move instilled a feeling of optimism regarding the global economic picture. By using words such as “gradual” and continue to be “data driven” (referring to future rate hikes) was what painted this with the proverbial “dovish” brush. Stay tuned to see how the market continues to digest and marinate in this “new rate era”.

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