The Federal Reserve’s decision to increase interest rates further strengthened the dollar, thus applying more pressure to crude oil and emerging markets. Stocks lost their footing during the month, with domestic large caps returning -1.6% and small caps -5.0%. In the S&P 500, defensive sectors generated positive results while cyclical/export sectors (e.g., energy, manufacturing, cyclicals) ended in the red. Bond markets also experienced volatility, as shorter-term interest rates drove Treasury prices lower. Corporate bonds, fueled by liquidity concerns in the high yield bond market, ended the month lower. The lone bright spot were REITs, which continue to benefit from the strength of the domestic housing recovery.
- The Federal Reserve voted to lift interest rates off of 0% for the first time in seven years, emphasizing a plan to gradually increase rates over a three year period; within 24 hours, most major banks increased their prime rate by 1/4 point to 3.5%
- WTI crude oil remained below $40/bbl for most of the month, ending the year at 2009 price levels, as a mild winter and increasing stockpiles exerted further downward pressure on the commodity
- The European Central Bank further reduced its deposit rate, from -0.2% to -0.3%, thus penalizing banks for holding deposits instead of lending; the ECB continues its efforts to stimulate the European economy and spur growth from its sub-1% levels
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Notes: 1) Sources: Bloomberg, J.P. Morgan Asset Management, Morningstar, Hedge Fund Research, Bureau of Labor Statistics, Bureau of Economic Analysis. 2) Data as of the date of this report unless otherwise noted. 3) U.S. GDP measures the percentage change during the referenced quarter as published by BEA. 4) Consumer Price Index for All Urban Consumers: U.S. City Average, All Items Less Food and Energy is based on 12-month percent change as published by BLS. Disclosures: This material is provided for informational purposes only and does not constitute an offer or solicitation by HFS, or its subsidiaries or affiliates, to invest in these indices or their constituent products. The data contained herein are from referenced sources which HFS believes to be reliable. This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. The views expressed are those of HFS. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investing involves a high degree of risk, and all investors should carefully consider their investment objectives and the suitability of any investment. Past performance is not necessarily indicative of future results. All data is as of the date of this report unless otherwise noted.