Download Wall Street hits new highs as markets bet on Fed rate rise

2/3/2017
Wall Street hits new highs as markets bet on Fed rate rise
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US Interest Rates
Wall Street hits new highs as markets bet on Fed rate rise
Global rally sparked by mounting evidence for increase in March
© AP
8 HOURS AGO
by: Eric Platt and Nicole Bullock in New York
Mounting evidence that the Federal Reserve will raise interest rates (http://next.ft.com/
content/37520c36­fddf­11e6­96f8­3700c5664d30) this month has given investors new
confidence in the strength of the US economy, sending Wall Street to record highs on
Wednesday in a broad­based rally that buoyed markets around the world.
The rise in equities was led by banks, which will directly benefit from higher rates by
improving margins on their lending. But there were gains across the board, with the S&P
500, Dow Jones Industrial Average, Nasdaq Composite and the Russell 2000, a gauge of
small­cap companies, all closing at new highs.
“The Fed is willing to be on top of things and has greater confidence in the economy,”
said Jerry Lucas, a senior strategist at UBS Wealth Management. “A strong stock market
https://www.ft.com/content/ba018066­fe99­11e6­8d8e­a5e3738f9ae4
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Wall Street hits new highs as markets bet on Fed rate rise
also gives the Fed confidence that they can go [ahead] with their target of three
tightenings this year.”
Stocks charged higher despite disappointment among investors that President Donald
Trump, in his first address to Congress on Tuesday night, failed to provide more details
(http://next.ft.com/content/fc25efa8­fe54­11e6­96f8­3700c5664d30) on his plans to
stimulate the economy and cut regulation.
But the market’s willingness to focus on the more conciliatory tone (http://next.ft.com/c
ontent/4bbdf02a­fe3b­11e6­96f8­3700c5664d30) of Mr Trump’s speech underlined that
there is more to the global rally in equities than mere optimism about the president’s
ambitions to cut corporate taxes and create jobs by investing in US infrastructure
projects.
Related article
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p://next.ft.com/content/d29d940e-fe3d-11e6-8d8e-a5e3738f9ae
4)
The White House will need to provide details on tax reform and infrastructure soon
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Wall Street hits new highs as markets bet on Fed rate rise
Investors said they were focused on a series of recent remarks by Fed policymakers
indicating they were prepared to raise rates at their meeting on March 14­15 regardless
of Mr Trump’s budget plans. Previously, the Fed’s Open Market Committee had said that
details of the White House’s intentions would play a central role in its rate decision.
Markets were particularly influenced by remarks made late on Tuesday by William
Dudley, the president of the New York Fed and an ally of chair Janet Yellen, that the case
for raising rates had become “a lot more compelling”.
“The [Fed] was adamant that March was live and the market wasn’t listening to them,”
said Ashish Shah, the head of fixed income at AllianceBernstein. “Now the market is
listening.”
Investors’ appetite was also piqued after a series of better than expected European and
US manufacturing surveys. Global economic data are beating economists’ forecasts by
the most since 2010, according to Citigroup.
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Wall Street hits new highs as markets bet on Fed rate rise
The S&P 500 has not lost more than 1 per cent in a trading session since October and
more than 130 stocks in the index hit new 52­week highs in Wednesday trading,
reflecting markets’ one­way path since the election. The market value of companies
within the benchmark index has climbed by more than $2tn since the start of November.
Related article
Fed’s Brainard says rates can rise ‘soon’ (http://next.ft.com/cont
ent/bf140ee4-fed4-11e6-96f8-3700c5664d30)
Bullish comments come from one of the US central bank’s most dovish policymakers
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Wall Street hits new highs as markets bet on Fed rate rise
The S&P 500 briefly crossed 2,400 on Wednesday, before closing 1.4 per cent higher at
2,396, while the Dow Jones Industrial Average settled above 21,000 for the first time in
history.
Traders now put the odds of a quarter­point rate rise in two weeks at 80 per cent, up
from just 34 per cent last week. The federal funds futures market on Wednesday also
priced in three quarter­point increases in 2017 for the first time this year, matching the
projections that the Fed made in December.
JJ Kinahan, chief market strategist of TD Ameritrade, said that “a rate hike now is
viewed as a vote of confidence in the economy as opposed to the past where it was seen
as such a potential market derail”.
Treasuries and investment grade corporate bonds slid on Wednesday as markets readied
for tighter monetary policy, which would make borrowing from the capital markets more
expensive.
Related article
Market odds of March rise in US interest rates hit 80% (http://n
ext.ft.com/content/37520c36-fddf-11e6-96f8-3700c5664d30)
Federal policymakers say they do not need to see Republican tax reforms before acting
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Wall Street hits new highs as markets bet on Fed rate rise
The yield on the benchmark 10­year bond climbed as much as 6 basis points to 2.45 per
cent, while policy­sensitive two­year notes (http://next.ft.com/content/5eb065f8­fea1­11
e6­96f8­3700c5664d30) rose 2bp to 1.28 per cent, the highest level since the US
emerged from recession after the financial crisis. A broad measure of the dollar jumped
0.6 per cent to its highest level since mid­January.
Although investors were disappointed by the lack of substance in Mr Trump’s speech, the
non­confrontational nature of the address boosted confidence that the president can
push through his pro­business agenda.
“People were expecting a lunatic, but he was more presidential, so it exceeded
expectations,” said Gregory Peters, a bond manager with PGIM Fixed Income. “But
content­wise it was very weak. He’s behind the curve in getting his agenda passed, and
the window of opportunity is closing.”
Additional reporting by Robin Wigglesworth
Print a single copy of this article for personal use. Contact us if you wish to print more to
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