The holiday season is in full swing, and that means it's the prime audience period to give. The stock market has provided a good portion of donations to investors in the form of a monthly return of + 2.7% on the S & P 500 index (+ 18% in 2017). For long-term investors, the shares have been the gift that follows [giving. As we approach the tenth anniversary of the 2008 financial crisis, stocks have returned + 68% from the October 2007 high and approximately + 297% from the March 2009 low. If you include dividend contributions during the last decade, these numbers look even more charitable.
Compared to stocks, however, the bonuses have acted more like a stingy Ebenezer Scrooge than a generous Mother Teresa . For the year, the ETF (AGG) of basic aggregate bonds of iShares has returned a meager + 1%, excluding dividends. Contributing to the lackluster results of the bonds has been the overwhelming monetary policy of the Federal Reserve, which will soon be managed under new leadership. In fact, earlier this week, Jerome Powell began congressional confirmation hearings as part of the process to replace current Fed chair Janet Yellen. As the Dow Jones Industrial Average rose during the consecutive month of 8 th to 24,272 (the longest winning streak for the stock market index in 20 years), investors managed to console themselves with Powell's comments because they communicated a continuing continuation of Yellen's plan to slowly reverse stimulating policies (ie raise interest rate targets and bleed badets from the Fed's balance sheet).
Because the rate of interest rate increases of the Federal Funds has been glacial from unprecedented low levels (0%) the resulting change in bond prices has been relatively meager so far in 2017 In that same deliberate line, the Fed will meet in a few weeks, with the expectation of increasing the rate of federal funds by 0.25% to a target level of 1.5%. If confirmed, Powell also plans to eliminate the gigantic balance of the Federal Reserve of $ 4.5 billion over time, which will slowly absorb the liquidity of the financial badets of the financial markets
Economy Driving Stocks and Interest Rates Higher
Gifts do not grow on trees And the prices of the shares do not usually grow without some fundamental fundamentals. With vacations here, consumers need money to meet the demands of individuals who receive gifts, and a healthy economy is the perfect recipe for curing the wallet and wallet disease.
In addition to the strength of the Federal Reserve signaling by raising interest rates, how do we know that the economy is standing firm? While economic growth may not be growing at a rate of burning of granaries, there are still many signs that the economy continues to advance. Here are some economic positive points to highlight:
- Acceleration of GDP growth: As you can see in the chart below, the broad economic growth, measured by the Gross Domestic Product (GDP), accelerated to a very respectable +3.3% growth rate during the third quarter of 2017 (the fastest percentage increase in three years). These GDP calculations are notoriously volatile figures, however, recent results are encouraging, especially considering that these third quarter statistics include the shock absorbing effects of Hurricane Harvey and Irma.