Expect Rock-Bottom Interest Rates Everywhere in 2015

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This shouldn’t come as a huge surprise, but the financial markets are obsessed with the low interest rate environment. While the Federal Reserve dominated headlines in 2014, this year investors have been preoccupied with what other central banks around the world are up to.

earningsThe euro is weaker than ever on fresh concerns that Greece could leave the European Union, and if the European Central Bank begins its own Quantitative Easing (QE) program, this would push down the euro even further.

Due to the uncertainty plaguing the eurozone, the U.S. dollar recently hit a nine-year high against the euro, and 10-year Treasury yields fell below 1.8% for the first time in 21 months.

With the exception of Greece, bond yields are collapsing all over the eurozone. Germany’s 10-year bond yield fell below 0.5%, Italy’s declined below 1.8% and Spain’s dipped below 1.6%. The fact of the matter is that as interest rates collapse around the world, foreign capital pours into the U.S. and further strengthens the dollar.

And because commodities are priced in U.S. dollars, crude oil prices naturally decline as the dollar rises. Crude oil has now “cracked” $50 per barrel and will stay low because we’re in the seasonally weak time of year for oil demand. So, until seasonal demand perks up in the spring, crude oil is expected to remain near the $50 per barrel level. Meanwhile, crude oil inventories are higher than normal, which should continue to depress prices.

Now, I know what you’re thinking: The stock market tends to thrive in an inflationary environment. So, won’t depressed oil prices continue to weigh on stocks? Typically, this would be true. But the reality is that lower energy prices have boosted consumer confidence and spending.

Plus, as long as the stock market continues to yield more than most Treasury securities, it will catch itself because there’s no lack of yield-hungry investors that will snap up stocks with attractive dividend yields.

As evidence of this, shares of Pilgrim’s Pride Corporation (PPC) rallied strongly after the meat producer announced plans to return $1.5 billion to shareholders in the form of a special dividend. (Shareholders of record on Jan. 30 will receive $5.77 per share on Feb. 17.)

And there is plenty more where that came from. The chart below shows how S&P 500 dividend yields stack up against 5- 10- and 30-year Treasury yields:

There is increasing evidence that interest rates — and by extension, Treasury yields — will remain low for the foreseeable future. Amid all of the market jitters, the Federal Open Market Committee (FOMC) appears to be the one party that is singing a more upbeat tune. The latest FOMC minutes recently revealed that the Fed would be willing to raise key interest rates if they were “reasonably confident that inflation will move back toward 2% over time.”

Translated from “Fed speak,” that essentially means that if no inflationary (or deflationary) pressures emerge, then the Fed sees no need to raise key interest rates anytime soon. Several FOMC officials also remarked that the U.S. economy might show “more momentum than anticipated,” and others expect that the boost to consumer spending from lower energy prices “could turn out to be quite large.”

In conclusion, interest rates both at home and abroad will likely remain at rock bottom in 2015. Yes, a strong U.S. dollar is causing commodity prices to continue to decline, and fueling fears that deflationary forces are spreading across America. But while this is making some stock investors nervous, those fears are unfounded.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


Article printed from InvestorPlace Media, https://investorplace.com/2015/01/crude-oil-prices-interest-rates-eurozone-fomc/.

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