Stocks and bonds were higher on the week, with noticeable gains coming immediately after the Federal Reserve (Fed) raised short-term interest rates by 0.25%. While investors have been complacent, we expect volatility to rise to more normal levels in response to speculation over ongoing Fed policy, the potential timing of initiatives from the Trump administration, and other political uncertainties abroad. We expect the Fed to stay patient and slowly raise interest rates as the domestic economy improves. Even if interest rates rise slowly, they’ll still be low. However, it's important to remember that bonds still play an important role in your portfolio because bonds typically rise when stock prices drop. Given the rally in stock prices around the world, you should ensure that your portfolio's mix of stocks and bonds is aligned with your comfort with risk and your long-term financial goals.
Both stocks and bonds recorded gains this week, with most of it coming after the Federal Reserve (Fed) announced a quarter-point rate hike, bringing the Federal Funds Rate target range to 0.75% - 1.00%. This is the Fed's third rate increase in the current expansion and its second in the last three months. This week's move by the Fed was largely anticipated, putting the markets' focus on the committee's commentary around the pace of additional rate hikes this year. The committee reiterated that it expects to raise short-term interest rates two more times in 2017, with the path for short-term interest rates remaining dependent on incoming economic data.
We'd offer four quick takeaways from last week's move by the Fed:
|Dow Jones Industrial Average||20,915
|S&P 500 Index||2,378
|10-yr Treasury Yield||2.50%||-0.08%||0.05%|
Next week's economic calendar is relatively light, especially compared with the last two weeks when data including February's jobs report and the Federal Reserve's press release captured investors' attention. Data coming next week include existing and new home sales, which will be released on Wednesday and Thursday, respectively.
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