In a week dominated by a high profile FOMC meeting, it was non-U.S. stocks that stole the show. Markets seemed more concerned that the Fed would move something more than the 25 basis points they had indicated or that their meeting statement would indicate a more material change in outlook. In the end, the Fed delivered what most characterized a ‘dovish hike’ and markets breathed a sigh of relief.

Your Weekly Anecdotes:

  • FOMC meeting highlights included a 9 to 1 vote for a 25bps hike (to 0.75%-1.00% range), confirmed indications for two more hikes in 2017 (markets had been leaning toward three), confirmed indications for three hikes in 2018, and some changes to the statement language.
  • The FOMC meeting sent stocks, bonds, emerging markets, and gold higher. Only bank stocks didn’t appreciate the communique as they remained hopeful that the Fed would be a bit more hawkish – given banks are in the business of lending at prevailing interest rates. Financials were the worst performing sector on the week while dividend oriented utilities and telecom stocks outperformed.
  • Interest rates had priced in something more than the Fed delivered and fell across the curve despite the rate hike. The yield curve ‘flattened’ as longer maturities fell more than shorter maturities.
  • The Fed Funds rate is still very stimulative, with real interest rates firmly in negative territory. The Taylor Rule suggests the Fed Funds rate is approximately 2.6% behind where it should be at prevailing levels of inflation and output.
  • European stocks rallied sharply on the BoE’s decision to stay on hold with interest rates, despite increasing inflation concerns. The PBOC hiked rates in sympathy with the Fed.
  • The S&P 500’s streak of consecutive trading days without a 1% decline remains intact at 108 days, near a 20 year record. Meanwhile, Bespoke noted that China’s current streak of 63 days is more than double all prior streaks in their market which is historically much more volatile.
  • Bespoke also noted that, since WWII, in 21 of 22 years where the S&P traded up over 5% in the first 50 trading days, it went on to post additional gains for the remainder of the year.
  • Valeant Pharmaceuticals is down 95% from its peak ($260s) in August 2015. Its highest profile shareholder, Bill Ackman of Pershing Square, sold his entire stake for $11 this week.
  • The electoral populist momentum was dealt a setback last week in the widely watched Dutch elections. The far right Freedom Party did not secure the most Parliament seats as they had hoped and will now battle for coalition alignment with all of the other political parties in Denmark.

Your Weekly Economic Updates:

  • February headline and core inflation (CPI) data registered 2.7% and 2.2% respectively.
  • The Atlanta Fed’s GDPNow forecast has been edging down from 2.5% in February to only 0.9% last week.
  • The JOLTs report showed low January layoffs, high private sector quit rates (just below 2007 highs), and job openings remaining near all-time highs.
  • February retail sales met expectations but the January figure was revised materially higher.
  • Manufacturing production has accelerated sharply. Over the last 6 months, it has risen at an annual rate of 3.48%, the strongest rate since July 2014.