The Federal Reserve raised interest rates by 25-basis points, as expected, and the “dot plot” signals three hikes in 2017. The 10-year Treasury yield fell significantly following the announcement.
Major indexes consolidated gains over the past week, though the Nasdaq remains the strongest with a relatively shallow consolidation.
All major indexes jumped in the wake of the Fed’s rate increase.
Homebuilders recently hit a new 52-week high. Strong home sales, home price, and construction numbers all point to accelerating growth. Higher employment and wages are also contributing to homebuilder optimism. This week homebuilder confidence hit its highest level since 2005. iShares U.S. Home Construction (ITB) has rallied nearly 25 percent over the past four months.
Natural resources sectors started pulling back in February. Heavy volume on March 11 in the chart of COPX reflects capitulation as weak hands dumped shares. Steel and coal bottomed around the same time, while KOL volume increased as bullish investors bought into the rebound.
Broader mining funds hadn’t bounced as much as subsector materials funds until Wednesday. Gold miners also saw a weaker bounce over the past week. The commodities complex bounced strongly following the rate hike.
Falling oil prices dinged high-yield credit over the past week. The chart below shows the price of HYG with the price of West Texas Intermediate Crude. A dip in crude oil in August, September and November also caused a small drop in HYG. Investment-grade bonds rallied despite a rise in Treasury bond yields.
Weakness in high-yield spilled over into short-duration and floating-rate funds, although the declines here were much milder than the small dip in HYG.
The U.S. dollar tumbled, gold and long-term bonds rallied after the Fed’s rate hike.
Emerging markets rebounded over the past week and India funds are approaching a multi-year breakout.
Oil broke out of its three-month trading range last week, resulting in a powerful downside move. Oil stocks and the natural gas sector responded positively, however, to the Fed’s rate announcement.
The most rate sensitive sectors, utilities and telecommunications, rallied sharply following the Fed’s announcement. The financial sector fell. This will likely reverse in the days ahead.
