Fed’s “Patience” Ignites Santa Claus Rally

December 22, 2014

Fed’s “Patience” Ignites Santa Claus Rally Photo

The Fed stole the show last week with its announcement on Wednesday that, due to low inflation, they could be “patient” in determining when and if a rate rise was needed. This is very positive for risk markets, and the S&P 500 rose by approximately 3.5% afterwards. High-yield bonds also performed well after the announcement as an accommodative Fed keeps the outlook for future credit losses low.

The markets should start to slow down for the remainder of the year this week. We expect the rally in stocks to continue into year-end and interest rates to remain relatively stable around the 2.20% level on the 10-year Treasury.

During this relative calm period for the markets, investors should be re-evaluating their sell discipline to plan ahead for the next bout of volatility. Geopolitical conditions, unstable oil prices and sluggish global growth will likely steal the show back from the Fed in the first quarter of 2015. In the interim, we would maintain positions in both high-yield and investment grade credit.

Tags: Monday Morning O'Malley | Inflation | High-Yield Bonds | Markets | Federal Reserve | S&P 500

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