por admin » Mié Dic 14, 2016 12:33 pm
Global Stock Rally Stalls, Dollar Flat Ahead of Fed
Fed-fund futures signal a 91% chance of an interest-rate rise
By Riva Gold Updated Dec. 14, 2016 9:37 a.m. ET
Stocks stabilized Wednesday ahead of the Federal Reserve’s final meeting of the year, where the U.S. central bank is expected to raise interest rates for the first time since 2015.
The Dow Jones Industrial Average slipped 6.7 points, or less than 0.1%, to 19905 in morning trading, after the blue-chip index climbed Tuesday to its 25th record close of 2016, within striking distance of reaching the 20000 mark for the first time.
The S&P 500 dropped less than 0.1%, and the Nasdaq Composite rose 0.1%.
A decision by the Fed not to act later Wednesday would come as a major shock to financial markets, with Fed-fund futures signaling a 91% chance of a quarter percentage point rate rise, according to CME Group. Focus is instead likely to lie with the Fed’s policy statement, economic forecasts and press conference for insight into the course of rates in the coming years.
“I’d be very surprised if we get anything but a 25 basis point increase,” said Simon Webber, a fund manager at Schroders. “It’ll be much more important what they say, and in particular how they talk about the prospect of new policy under the Trump administration...will they start to build that into their expectations, or are they going to wait and see?”
The Stoxx Europe 600 fell 0.3% and Japan’s Nikkei was little changed after settling close to one-year highs, while the dollar inched down 0.2% and gold added 0.7%
Equity markets have rallied since the U.S. election on the belief that the president-elect’s proposals to cut corporate taxes and ramp up fiscal stimulus will accelerate growth and inflation—factors that could also speed up the pace of interest rate rises.
While higher rates tend to drag on equity market valuations, most investors expect the pace of interest rate rises next year to be gradual, allowing companies to adjust.
“We’re clearly finishing the year in a very good mood,” said Omar Aguilar, chief investment officer for equities at Charles Schwab Investment Management. “There’s been speculation about what inflation will do next year, but the reality is we don’t have anything to hold on to other than speculation and hope.”
That hope has helped the Dow Jones Industrial Average climb nearly 9% since the election. The S&P 500 and the Nasdaq Composite also closed at records Tuesday alongside the Dow for the sixth time since the U.S. election.
“Normally, people think a rising interest rate environment is bad for equity markets, but when rates come up from a very low base, it’s a sign the economy is healthy,” said Alex Dryden, strategist at J.P. Morgan Asset Management.
“Looking to the first quarter of next year, all I can see is positives for holding U.S. equities,” he said, pointing to improvements in global growth, a relaxation of corporate regulation and changes to tax policy that should make the U.S. market more attractive.
The Fed’s message will also send important signals to the bond market, which was hit by a steep selloff after yields bottomed earlier this summer.
The yield on the 10-year U.S. Treasury note fell to 2.430% Wednesday from 2.479% on Tuesday, its highest since June 2015. The rate-sensitive two-year yield was steady at 1.162%, from 1.169%, its highest settlement since 2010. Investors sold short-term debt and migrated cash into long-term bonds Tuesday, a move often associated with tighter monetary policy.
German 10-year bund yields inched down to 0.314% from 0.356%, while Japanese 30-year yields fell to 0.724% from 0.8% Tuesday, as the Bank of Japan moved Wednesday to stem a recent climb in yields. This was its first attempt to guide rates lower on bonds with more than 10 years left until maturity since it began its policy experiment in September.
S&P 500 Leaders and Laggards - 1 Day
Just as the prospect of higher inflation and rates has hit global bond markets, a faster-than-expected pace of rate increases in the U.S. would likely weigh on stocks considered bond-proxies, or corners of the stock market that rely heavily on dividend payouts.
At the same time, it would likely offer a further boost to the appeal of banks and insurance companies, among the best performers in the current rally. The KBW Nasdaq Bank Index is up more than 22% since election, while shares of Goldman Sachs Group have risen 31%, helping propel the Dow to fresh highs.
Investors globally have piled into banks, whose stocks have been buoyed in recent weeks by the prospect of a bigger difference between the yield on short and long dated bonds, known as a steeper yield curve, and decreased regulation.
With a clear catalyst to propel financials higher and less than three weeks before the end of the year, “there is a fear of missing out,” said Charles de Boissezon, co-head of European equity strategy at Société Générale.
—Aaron Kuriloff and Takashi Nakamichi contributed to this article.