To no surprise, the Federal Reserve raised interest rates 1/4 point today citing stronger economic growth and a pick-up in inflation. A stronger job market also played a role in the decision of the Fed. What wasn’t quite expected was the language of an additional anticipated rate hike from the projected two hikes in 2017 to now three. This might of caused the slight sell-off yesterday in the markets with the Dow Jones Industrial Average (chart) falling 118.68 points, the S&P 500 (chart) was lower 18.44 points, the Nasdaq (chart) fell 27.15 points and the small-cap Russell 2000 (chart) retraced by 17.51 points.

With all things considered, this pullback was long overdue. In fact, I am surprised that the markets held up like they did yesterday. Especially considering the rip roaring rally most equities have enjoyed since the presidential election. Markets have been on fire with the Dow Jones Industrials (chart) gaining almost 1,600 points, the S&P 500 (chart) ripping 125 points, the Nasdaq (chart) catapulting about 300 points and the small-cap Russell 2000 (chart) up a staggering 170 points. What a breathtaking rally in such a short period of time.

So what can we expect between now and year end? Let’s think about this for a minute. If you are an institutional investor, fund manager, hedge fund or the like would you be taking profits into year end? Or would you wait until we get into the new year knowing that capital gains taxes and corporate taxes are coming down? I think it is fair to say the latter would make the most sense. Add into the mix the rotation that continues out of the bond market and into equities in which certain pundits believe we are in the fourth or fifth inning of that rotation, one has to ascertain that this bull market has more room to run.

Whatever the case I think pullbacks will be bought as momentum continues into year-end. Paula and I wish everyone the happiest and healthiest holiday season 🙂

~George