Today at 2:00 the FOMC announced that they were raising the federal funds rate by a 0.25%. The federal funds rate had remained at 0% for seven years and had not been increased since 2006. Immediately after the announcement the Dow Jones Industrial Average pushed down into negative territory before rallying and closing up 225 points. I stated that even if the federal funds rate was increased by a 0.25% that I was very bullish on the overall market and that I expected the Dow Jones Industrial Average, S&P 500, NASDAQ, and Russell 2000 to rally once the decision was released.
In justifying the first rate hike in nine years, the Federal Reserve stated that they were confident that the economy will grow. They stated that inflation was low but they expected their inflation target of 2% to be met sometime in 2016. After the previous FOMC meeting, the Federal Reserve stated that their decision on whether or not to raise the federal funds rate would be very data dependent. They also maintained that they had an inflation target of 2% and were monitoring the slowdown in China. The data is not strong and the 0.5% inflation rate is nowhere near the target 2%. I do not understand the Federal Reserve’s decision to raise rates after what they had been saying the past couple months. The year over year GDP is also only around 2.25%. This is the first time the federal funds rate has been increased with the GDP at such low levels.
For the last 11 months and 7 FOMC meetings I have been stating that I expected the federal funds rate to remain at 0%. I was correct for 7 of the 8 FOMC meeting in 2015. Going into today’s meeting I stated that I did not believe the Federal Reserve would raise the federal funds rate. The data did not support the decision to raise rates. Retail sales, pending home sales, existing home sales, new home sales, and GDP showed weakness in the economy.
A few weeks ago I stated that if I was a long term investor I would look to sell if the Dow Jones Industrial Average got into the 17800-18400 range. The Dow Jones Industrial Average got up to the 17900 level before dropping to the 17150 level. With only nine business days remaining in the year, if I was a long term investor I would look to sell if the Dow Jones Industrial Average gets into the 17800-18400 range. I would look to sell any mutual funds, stocks, or ETFs (exchange traded funds), be in cash, and look for opportunities to reenter in 2016. I expect a lot of volatility in 2016. I also believe there is a good chance that the lows of 2015 will be met sometime in the second/third quarter of 2016.
At year’s end I expect the NASDAQ to be up high single to low double digits. I expect the S&P 500, Dow Jones Industrial Average, and Russell 2000 to be up 3-7%.
Crude oil was down about 1.50-1.70 today. At 10:30 the crude oil inventory number was released and was very bearish. Inventories were expected to decrease but they increased by 4.8 million barrels. This contributed to the significant selloff in crude oil prior to the FOMC announcement. Any time interest rates rise it puts pressure on the commodities. The inventory number along with the FOMC announcement put significant pressure on crude oil.
Gold was up around 15 dollars at one point today before closing up 8-9. Gold is in a range between 1040 and 1090. If I was a long term investor I would be on the sidelines waiting for a clearer pattern to setup in gold. Gold is probably dead money between now and the end of the year.