Stocks Inch Higher as Market Responds to Rate Hike

U.S. equities moved slightly higher on Thursday as investors responded to overnight volatility in Asian and European markets spurred by Wednesday’s interest rate hike decision by the Federal Reserve.

While rates were increased another quarter point — the second tightening move of this cycle and the first and only hike of 2016 — more attention was paid to a hawkish rate hike forecast for 2017. Compared to the two quarter point hikes for next year the Fed was looking for back in September, policymakers are now penciling in three hikes. This unleashed currency and bond market volatility from China (bond market trading was halted) to Europe (euro weakness), which if it continues could threaten the post-election market uptrend.

In the stock market, the Dow Jones Industrial Average gained 0.3%, the S&P 500 gained 0.4%, the Nasdaq Composite wafted up 0.4% and the Russell 2000 gained 0.8%. Treasury bonds were mixed, the dollar was stronger hitting a 14-year high, gold lost 2.9% and oil was mixed as traders balanced likely higher production from Nigeria and Libya against pledged OPEC output cuts.121516-DJI copy

Strength in the dollar against the yen pushed the ProShares Ultra Short Yen (NYSEARCA:YCS) recommended to Edge subscribers to a gain of 1.8% bringing its total gain since recommended on Nov. 10 to 23%.

Financial stocks again led the way with a 1% gain on net interest margin hopes while yield sensitives including REITs and consumer discretionary stocks lagged with losses of 0.7% and 0.3%, respectively. Eli Lilly and Co (NYSE:LLY) gained 5.5% thanks to fiscal 2017 guidance that was 4% ahead of the consensus estimate on better-than-expected sales and profitability. Delta (NYSE:DAL) gained 1.4% on a 1% 2017 capacity increase and better margin guidance.

Yahoo! Inc. (NASDAQ:YHOO) fell 6.1% after disclosing a 2013 data breach impacting some one billion user accounts, which was nearly twice as large as the separate breach reported in September.

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On the economic front, headline consumer price inflation increased 0.2% in November for a 1.7% year-over-year rate. The Philly Fed manufacturing activity index surged as did the NY Fed Empire survey.

And the December NAHB homebuilder confidence survey hit 70, the best level since July 2005 and ahead of expectations. Optimism focused on hopes for regulatory relief from the incoming Trump administration as regulatory costs for homebuilding have increased 29% over the past five years.

Watch for market volatility to continue as Friday is quadruple witching and technical indicators are weakening. The Dow has been pushed away from the 20,000 level for the third consecutive day. Investor sentiment is off-the-chart extreme. And market breadth remains tepid.

Anthony Mirhaydari is founder of the Edge and Edge Pro investment advisory newsletters. A two-week and four-week free trial offer has been extended to InvestorPlace readers.

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