In a professionally sanctioned fight, a “no decision” wouldn’t spark much excitement. However, in the capital markets, investors cheered the central bank’s equivalent of a no decision by staying put on interest rates after cutting them thrice in 2019.
Per a CNBC report, the “Federal Open Market Committee held the overnight benchmark rate in a range between 1.5% and 1.75%. In a statement, the policymaking committee said rates are geared towards a return to their 2% inflation objective. The central bank also remarked the labor market remains “strong” while the economy is growing at a ‘moderate rate.’ However, the Fed downgraded its characterization of the U.S. consumer, noting spending is ‘moderate’ after being “strong” in December.”
Nonetheless, the big market mover at present time is still the coronavirus outbreak.
“Like every earning season, you get a point in time where you shift from a macro focus to a micro focus. That seems to be the case today,” said Art Hogan, chief market strategist at National Securities. “That’s okay, because the macro focus really has been Chinese coronavirus, and what eventual economic damage that might do.”
“The market has done a pretty efficient job of picking the sectors that are likely to be hit the hardest and really punishing that group,” he added.
Many analysts are forecasting moderate growth for 2020 given a strong 2019.
“Because of that melt-up we had at the end of 2019, stocks are not cheap. That leaves almost no margin for unknowns to pop up,” said Tim Courtney, chief investment officer at Exencial Wealth Advisors. “We’re optimistic that we’ll have some average earnings growth and GDP growth.”
Seeking Yield with Rates Unchanged
The central bank’s decision to keep rates unchanged doesn’t help investors looking for yield, but they can look overseas for higher-yielding assets via ETFs like the Vanguard Total International Bond Index Fund ETF Shares (NasdaqGM: BNDX). BNDX seeks to track the performance of a benchmark index that measures the investment return of non-U.S. dollar-denominated investment-grade bonds.
BNDX employs an indexing investment approach designed to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index (USD Hedged). This index provides a broad-based measure of the global, investment-grade, fixed-rate debt markets.
For investors seeking high-yielding income and emerging markets exposure, they can look to the VanEck Vectors EM High Yield Bond ETF (NYSEArca: HYEM). HYEM seeks to replicate the ICE BofAML Diversified High Yield US Emerging Markets Corporate Plus Index, which is comprised of U.S. dollar denominated bonds issued by non-sovereign emerging market issuers that have a below investment grade rating and that are issued in the major domestic and Eurobond markets.
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