U.S. equities and stock exchange traded funds declined in volatile action late Thursday after the Federal Reserve raised interest rates for the second time in a decade.
On Thursday, the SPDR S&P 500 ETF (NYSEArca: SPY), iShares Core S&P 500 ETF (NYSEArca: IVV) and Vanguard 500 Index (NYSEArca: VOO) all decreased 0.8% after hitting new highs ever since Donald Trump won the presidential election. The S&P 500 ETFs are up 5.2% in the past month and up 13.5% year-to-date.
“I think it’s all about reality setting in,” Peter Cardillo, chief market economist at First Standard Financial, told CNBC. “I think we have to expect more volatility and less momentum buying.”
The Federal Open Market Committee announced a higher target range of 0.5% to 0.75% from 0.25% to 0.5%. The overnight funds rate was at 0.41%. The Fed committee also anticipates three rate hikes in 2017, two or three in 2018 and three in 2019.
“What happened here was that nobody was expecting the third rate hike” in the central bank’s forecast, Tom Siomades, head of Hartford Funds Investment Consulting Group, told CNBC. “There was no data that would have necessitated that.”
Federal Chairwoman Janet Yellen also commented on President-elect Trump’s plans to stimulate the economywith government spending, which swayed the central bank’s expectations for three hikes next year to head off a potentially overheating economy.
“If there is a large fiscal stimulus then this will almost certainly create inflationary pressure that the Fed will have to fight by raising rates. It’s far from clear how big any stimulus will be and what impact it will have. The Fed is as much in the dark about this as the rest of us,” Luke Bartholomew, investment manager at Aberdeen Asset Management, told CNBC.
U.S. markets have been strengthening ever since Trump’s election win on hopes that the new administration could stimulate the economy with corporate tax cuts and huge infrastructure spending while cutting down on regulation.
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