Ho, Ho, Ho...It's Higher Interest Rates and Mistletoe!

Well, regarding the latter, is your Christmas/Holiday shopping done?  In my case, I think so. Sandra, my wife, is masterful at taking care of this oftentimes insurmountable task. Regarding myself, yep, I think I've got it covered and well ahead of time, which usually isn't the case.

Regarding the former, the media's portrayal of the Fed raising interest rates is similar to eerie music you'd hear in a horror movie like Halloween or Jaws just before....

However, the outcome of the Fed's rate hike may be very different from what you see on the big screen.

Julian Emanuel, an equities and derivatives strategist with UBS, noted in a CNBC article on Tuesday, "that the first Fed rate hike does signal the end of the bull market, but on average that end has come two years later and 33 percent higher with a low range of nine months and 10 percent." He also noted that he expected to see new highs in stock indexes in the next six months, if not far sooner.

Emanuel studied rate hike cycles going back to the 1970s, measuring the gains and duration until they each topped before ending in bear markets. He eliminated the 1994 cycle since the market never officially entered a bear market before the next period of rate hikes.

The reason for his optimism is illustrated in the following history of how the S&P 500 stock index has reacted to past Fed interest rate hikes. 

 Fed Rate Hikes

Here are some additional insights on the Fed's rate hike:

  • "Our feeling is technically speaking, with (stocks) getting oversold into what is usually a seasonally strong time of year, that we will get a positive response," said Ari Wald, technical analyst at Oppenheimer. 
  • Raymond James strategist Jeffrey Saut on Tuesday said stocks are so oversold that they could be in for a "rip your face off rally right here." Saut rightly called the bottom of the summer swoon in August.

 

If you'd like to hear more about thoughts from Mr. Saut, click on the following link: Stocks ready for 'rip your face off' rally: Saut

A Very Quick Recap of 2015

2015 has been an interesting year.

  • We celebrated the KC Royals being crowned World Champions of baseball.
  • We've seen oil, gasoline and natural gas prices plummet to multi-year lows. As a result, energy related stocks have taken it on the chin.
  • El Nino is causing unseasonably mild temperatures for this time of year, and if meteorologists are correct we may see 60° on Christmas day in the greater KC Metro area.
  • A strong U.S. dollar has been a boon for U.S. consumers buying foreign goods and services, but U.S. companies have seen the bottom lines take a hit since they're at a cost disadvantage when selling overseas.
  • Volatility returned to the stock market, with the three major U.S. stock indices (the Dow Jones, S&P 500 and NASDAQ) experiencing their first 10% correction in over four years.
  • Overseas stock markets show renewed signs of life after several stagnant years. That being said, emerging markets continued to struggle and China saw its stock market bounce around, and especially down, more than kids on a trampoline.
  • On a more positive note, Star Wars: The Force Awakens movie released this week, and it appears that it may become the highest grossing movie of all time. Along this line, consumers are opening up their wallets. New car sales are the strongest in years, and FedEx has reported that deliveries this season are possibly at records levels.

 

As the ole saying goes, "bull markets climb a wall of worry" and they usually end when no one is any longer worried about anything.

No one knows what lies ahead for 2016, but what I can tell you is that there is still a sense of fear among many investors. Thus, if the U.S. economy can maintain its present "slow" growth trajectory and investors realize that the Fed's interest rate hike has not resulted in the end of the world, then U.S. stocks may do reasonably well in the coming year.

Even though overall investment returns for both stock and bonds have been quite lackluster over the past year, I am still hopeful for a "Santa Claus" rally as we exit 2015. For now, I recommend you take time to enjoy some Christmas cookies, holiday music and time with family and friends.

Last week the staff shared some of their favorite holiday cookies with clients and friends of Integrity Advisory.  We had a great turnout and lots of fun!

I hope the following pictures from our recent Christmas Cookie Open House put you in a festive mood.

Cookie Open HouseCookie Open House

Cookie Open House

 Quotes

"A Christmas candle is a lovely thing; It makes no noise at all, But softly gives itself away; While quite unselfish, it grows small."

             Eva K. Logue

"Bessed is the season which engages the whole world in a conspiracy of love!"

                Hamilton Wright Mabie

Quotes selected by the IAG Staff

"May Christmas lend a special charm to all you chance to do.  And may the season light your way to hopes and dreams anew."

Garnett Ann Schultz

"Christmas is forever, not just one day, for loving, sharing, giving, are not to put away like bells and lights and tinsel, in some box upon a shelf.  The good you do for others is good you do yourself."

Norman Wesley Brooks


In honor of the Christmas Holiday, Integrity Advisory will be closed on Thursday, December 24th and Friday, December 25th.  Normal business hours will resume on Monday, December 28th.

From everyone at IAG, we wish you and your family the warmest wishes this Holiday Season. Merry Christmas to all!

 

Tony Moeller, CPA

The information listed in this commentary is a compilation of various publicly available sources and is for informational purposes only. It is not a recommendation or solicitation of any particular investment or strategy. A risk of loss is involved with investments in the stock and bond markets.

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