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Wednesday, December 16, 2015
Markets surge after the FOMC interest rate hike
Dow soared 224 (near the highs with limited selling at the close), advancers over decliners more than 4-1 & NAZ rose 75. The MLP index recover 10+ to 261 & the REIT index gained 6 to 324. Junk bond funds had a relatively modest rebound after recent selling & Treasuries sold off. Oil dropped to the 35s on inventory data (see below) & gold had a good day on bets against the outcome of the rate hike.
The Federal Reserve raised interest rates for the first time in
almost a decade in a widely telegraphed move while signaling that the
pace of subsequent increases will be “gradual” & in line with previous
projections. The FMOC unanimously voted
to set the new target range for the federal funds rate at 0.25-0.5%, up from zero-0.25%. Policy makers separately
forecast an appropriate rate of 1.375% at the end of 2016, the
same as Sep, implying 4 quarter-point increases in the target
range next year.
“The
committee judges that there has been considerable improvement in labor
market conditions this year, and it is reasonably confident that
inflation will rise, over the medium term, to its 2 percent objective,”
the FOMC said. The Fed said it raised rates “given the economic outlook,
and recognizing the time it takes for policy actions to affect future
economic outcomes.” “The committee expects that economic conditions will evolve in a
manner that will warrant only gradual increases in the federal funds
rate,” the FOMC said. “The actual path of the federal funds rate will
depend on the economic outlook as informed by incoming data.” The
FOMC expects to maintain the size of its balance sheet “until
normalization of the level of the federal funds rate is well under way.”
The price difference between US oil & the global benchmark narrowed to the smallest level in months after Congress agreed to lift
the ban on most US crude exports. Both benchmarks traded
lower on an industry report that showed that total US commercial
inventories of crude oil & refined products rose to a record high last
week. US crude has cost
less than Brent in recent years due to booming shale-oil
production. The export ban has kept US producers largely restricted to
selling their crude to US refineries, many of which are designed to
process different grades of imported crude. Producers were forced to
discount their crude to encourage refiners to buy more domestic oil &
import less. Yesterday, congressional leaders agreed to lift
the 40-year-old export ban as part of a broader spending & tax bill.
The bill must still be passed & signed into law. The price gap between the 2 benchmarks stood at less than $1 a barrel today, the narrowest level since Jan.
Weekly inventory data from the Energy Information Administration
showed an increase of 4.8M barrels of crude oil stocks. Analysts expected that
crude-oil inventories fell 1.4M barrels. Crude
supplies rose as refineries processed less crude than expected &
imports increased. US crude production rose 12K barrels a day to
9.2M barrels a day.
Supplies of gasoline & distillates, including heating oil & diesel
fuel, also rose. Total crude & refined-product commercial stockpiles
climbed by 5M barrels to 1.31B barrels, a record in EIA
data going back to 1990. Crude supplies usually fall at this
time of year as refineries buy more crude to process into heating oil to
meet indoor-heating demand, but heating-oil consumption has been low
this year due to mild weather in the US.
Google plans to make its self-driving cars unit, which will
offer rides for hire, a stand-alone business under the Alphabet corp umbrella next year, according to leaker. The autonomous vehicles have logged more than 1M miles on public roads, mostly around
San Francisco & Austin, Texas, making these cities logical places for
launching a service. The fleets, which would include a
range of large & small vehicles, could be deployed first in confined
areas like college campuses, military bases or corp office parks. GOOG is trying to provide the clearest indication on how it plans to
make money from self-driving automotive technologies that it began
testing in 2009. In Aug, the company reorganized itself into a conglomerate called Alphabet & the
company plans to spin out several of its advanced-technology
units into stand-alone companies within the Alphabet portfolio,
including its robotics division, its health-care company Verily, the
Google Ventures & Google Capital investment firms, Google (the
search-engine company) & Nest, which produces intelligent smoke alarms & thermostats. The self-driving car unit now resides in the research
division called Google X. High priced GOOG stock shot up 14. If you would like to like more about GOOG, click on this link: club.ino.com/trend/analysis/stock/GOOG?a_aid=CD3289&a_bid=6ae5b6f7
Stocks like what Janet had to say. This hike was well planned & advertised, so there was no problem absorbing the news. However, oil has been the major drag on the stock market & that may continue after today's excitement over the rate hike dissipates. Lifting the export ban on oil is a plus for business, but the larger issue is global with too much supply & not enough demand (that is barely growing). The 3 top oil producers (Russia, Saudi Arabia & the US) are not reducing supply & increased shipments from Iran will begin shortly. Dow is up slightly in Dec & still in the red YTD.
![Live 24 hours gold chart [Kitco Inc.]](http://www.kitco.com/images/live/gold.gif?0.39403502233494714)
...1.64 
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