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Fed Raises Rates While Dashboard Indicators Stand Pat

Weekly Market Summary

After going a year since its last rate increase, the Federal Reserve announced this week that it was raising the benchmark federal funds rate by a quarter percentage point—to between 0.50% and 0.75%—and that officials now expect to raise short-term rates more often in 2017. This is only the second rate increase in more than 10 years. The decision to increase the federal funds rate was unanimous, and the Federal Open Market Committee (FOMC) now forecasts three rate hikes for 2017.

In the aftermath of the Fed’s rate increase announcement, the U.S. dollar rose to 14-year highs. The U.S. dollar has risen sharply since the U.S. presidential election, and this week’s Federal Reserve interest rate increase gave the dollar an additional boost. The impact of a stronger dollar includes the hampering of earnings of U.S. companies that sell goods overseas. The sales and earnings that these foreign sales generate must be translated back to U.S. dollars, and a strong dollar relative to foreign currencies lowers their value. However, a stronger dollar increases the purchasing power of U.S. consumers by making foreign travel and imported products cheaper.

The Dow Jones Industrial Average (DJIA) managed a 0.4% increase this week and closed at 19,843.41. The index posted a sixth straight weekly gain, its longest winning streak in more than a year according to Schaeffer’s Investment research. The 20,000 mark continues to be elusive and we view that level as upside resistance. The 19,500 mark may offer the first level of near-term support, followed by the 19,250 level, which was where the current breakout originated from.

The S&P 500 Index (SPX) lost 0.1% this week and ended the week at 2,258.07. The 2,275 level may be resistance to the upside. To the downside, we look to the 2,200 to 2,215 level for support, as this range offered resistance previously.

This week, seven of the 10 S&P Sector SPDRs posted losses. Breaking out of its recent slump, Health Care (XLV) turned in the best performance for the week, adding 1.1%. Utilities (XLU) gained 0.9% this week despite the announced interest rate hike. Perhaps the cold weather that is gripping most of the country warmed investors to the sector. Industrials (XLI) were the weakest sector this week, shedding 2.2%, followed closely by Materials (XLB), which fell 2.1%.

The broad market Wilshire 5000 (W5000) slid 0.3% this week to 23,600.09. We view the 23,750 level as upside resistance while we look to the 22,800 to 23,100 range for initial downside support.

The tech-laden Nasdaq Composite (COMP) also dipped 0.1% this week and closed at 5,437.16. The 5,450 level may offer some resistance moving forward. We will wait to see if round-number support at 5,400 materializes.

In a reversal from last week, the Russell 2000 (RUT) index underperformed most other market indexes this week, as small-cap issues fell 1.7% to close at 1,364.19. To the upside, there may be resistance just below the 1,400 level. To the downside, we look for initial support around 1,350, where previous resistance may become support.

The CBOE Volatility Index (VIX) rose 3.8% this week to 12.20.

Computerized Investing Market Dashboard Indicators

This week, none of the Market Dashboard indicators triggered a change in signal, nor did any of the indicators trigger confirming bullish or bearish signals.

To see the current signals of all the dashboard indicators, visit the CI Market Dashboard.

The Market Dashboard is one of the many benefits of Computerized Investing, a service from AAII that harnesses the power of technology to help individual investors become more effective managers of their own portfolios. To learn more about Computerized Investing, visit http://www.aaii.com/computerized-investing/about

 

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