March 17, 2017 Weekly Market Recap

After snapping a streak of six consecutive weekly gains, the stock market returned to its winning ways. The S&P 500 added 0.2% for the week, but did not overtake its record high from the start of March.

The tech-heavy Nasdaq (+0.7%) outperformed, climbing near its early-March high to flirt with another record close. The index is now up 9.6% for the year while the S&P 500 has climbed 6.2%.

On Wednesday, the Federal Open Market Committee raised the federal funds target range by 25 basis points to 0.75% – 1.00%. This move was widely-expected going into the day of the announcement, but investors were somewhat surprised to see the Fed maintain its measured outlook. The central bank nudged up its median target rate for the end of 2019 to 3.0% from 2.9%, but left its long-run target unchanged at 3.0%.

It is worth noting that the Fed tightened policy at a time when growth forecasts have shifted lower. The Federal Reserve Bank of Atlanta now expects that first quarter GDP will be up only 0.9% after calling for growth of more than 3.0% at the start of February. To be fair, first quarter GDP readings have a known tendency to underperform the remaining three quarters. For her part, Fed Chair Janet Yellen said, “GDP is a pretty noisy indicator”, adding that the central bank expects growth to average 2.0% over the course of 2017.

With the March hike in the books, the market’s expectations are now in line with FOMC projections for two more hikes before the end of the year. The fed funds futures market sees almost no chance of a hike in May (6.4%), but is starting to price in a rate raise for June (58.3%). Looking at the remainder of the year, the fed funds futures market sees a pause into the second half, currently expected to conclude in December when the range should be boosted to 1.25% – 1.50%.

Source: Briefing Investor