In March, the Federal Reserve decided to reign in its plan for raising rates this year, reducing the expected number of rate increases from four to two.
The Federal Open Market Committee came away from its most recent meeting projecting an interest rate hike of .50 percent, down from the original projection of 1 percent. According to the article’s author, the Fed is waiting for tighter credit spreads and higher inflation expectations before making additional increases.
In the short term, we believe this news could be good for the bond market, permitting income investors an attractive entry point to invest at potentially higher yields. In the domestic credit market, longer maturities in investment-grade corporate bonds offer attractive spreads, supported by both corporate fundamentals and the Fed policy.
Despite the fact that manufacturing in the U.S. has experienced a downward slide in employment numbers, it produces approximately 65 percent of S&P 500 earnings. There are signs that U.S. manufacturing output is growing thanks to domestic demand, touting 3.3 percent growth over the past year. It is our belief that further growth, low unemployment and inflation near the 2 percent target could prove to be a catalyst for the Federal Reserve to move interest rates higher.
For more information on how the latest market trends may impact your retirement income strategy, feel free to give us a call.
[CLICK HERE to read the article, “Looking for yield in all the right places: A post-FOMC playbook” from Columbia Threadneedle, March 21, 2016.]
[CLICK HERE to read the article, “Rumors of the industrial sector’s demise are greatly exaggerated” from Columbia Threadneedle, March 28, 2016.]
We believe markets like certainty, but that’s something we lack in abundance thanks to this topsy-turvy election year. Oil prices continue to fall, and the only certainty is that they can’t keep falling forever.
In the fixed income market, many portfolio managers are recommending that investors resist chasing yield, diversify their holdings and seek out solid, risk-adjusted returns. According to the article, “5 Rules for Avoiding Bond Portfolio Purgatory”, “Consistency of results is far more important than absolute returns in any given year.”
View the provided link to read the article, “5 Rules for Avoiding Bond Portfolio Purgatory” from Forbes, March 23, 2016: http://www.forbes.com/sites/investor/2016/03/23/5-rules-for-avoiding-bond-portfolio-purgatory/#1d9a5fe97029
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