I had a chance to see the new Star Wars movie, and I’ve titled this post in the spirit of the movie, which by the way is totally awesome. The hawks on the Federal Open Market Committee (FOMC) awakened last week from their decade-long slumber. The FOMC at its meeting decided to raise the Fed Funds rate by 0.25% to a range of 0.25% to 0.50%. The Fed left the door open to future rate increases but also cited that they expected inflation to rise to their target in the coming quarters. The market, however, is signaling that inflation will remain subdued and that the Fed’s expectation for four rate increases next year will not come to fruition in 2016. This should keep bonds well bid. I continue to be a buyer of fixed income assets, especially on any increase in yields.
U.S. equities rallied into and immediately after the Fed announcement but then gave up those gains late in the week to end virtually unchanged week-over-week. All markets continue to have one eye on the price of oil as the commodity made new lows last week, falling below $35/barrel. The high yield bond market has suffered significant losses in the energy and metal/mining sectors due to commodity weakness. Additionally, concerns about market liquidity on the heels of the Third Avenue fund closing and increased scrutiny on the high yield ETFs like (HYG) put pressure on markets.
I expect markets to start to quiet down going into year-end, but any liquidity concerns could cause pockets of heightened volatility.
< Go to Monday Morning Perspectives
This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.
Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client. Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.
Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice. The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete. Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements. Actual results may differ significantly. Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.
Investing involves risk, including possible loss of principal. Past performance is no guarantee of future results. All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.
High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.
All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.
