ADVANCING STOCK INDEX FUTURES AND A TIGHTER FED?
The two just don’t seem compatible. At first glance higher stock index futures and rising interest rates appear to be opposites. How can a bull market in stock index futures continue in the wake of tighter credit from the Federal Open Market Committee?
The two just don’t seem compatible. At first glance higher stock index futures and rising interest rates appear to be opposites. How can a bull market in stock index futures continue in the wake of tighter credit from the Federal Open Market Committee? Traditional thinking is that stock index futures are destined to suffer when interest rates are increasing. However, that line of logic has not been working. If fact it has not been working for quite a while. S&P 500, Dow and NASDAQ futures advanced to new historical highs this year defying two Fed Funds hikes, one in December 2015 and the second in December 2016. In addition, more rate increases are predicted this year and stock index futures continue to hold firm.
The Federal Open Market Committee’s relatively new “dot plot” analysis is signaling three increases in the Fed Funds rate this year instead of the two that the Federal Reserve predicted in a prior estimate. The “dot plot” is a technique used by Fed policymakers to formulate their forecasts for interest rates over the next several years. In addition to the three Fed Funds rate hikes that the Fed predicted in 2017, the central bank of the U.S. is anticipating three more in 2018 and an additional three in 2019. Some analysts are even more hawkish than the Federal Reserve, predicting four rate hikes this year and another four in 2018.
Source: QST 10 | ADMISI - The Ghost In The Machine | January/February 2017
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