John Hancock: Weekly Market Recap Week Ended December 21st
As expected, the U.S. Federal Reserve Board approved its fourth interest-rate increase of the year, and a majority of its members forecast no more than two further rate hikes next year. However, the Fed’s outlook for a slower pace of rate hikes wasn’t dovish enough for many investors, as stocks fell after Wednesday afternoon’s announcement.
Prices of government bonds rallied following Wednesday’s Fed meeting, and the yield of the 10-year U.S. Treasury Bond slipped below 2.80% to its lowest level since May 2018. As recently as early November, the yield was above 3.20%.
While economic growth in the U.S. remains stronger than in most of the world’s developed markets, the Fed has scaled back its forecast for this year’s growth rate as well as next year’s figure. In 2019, the Fed expects GDP growth of 2.3%, down from an earlier forecast of 2.5%.
Hopes for a late-year Santa Claus rally dwindled as a confluence of negative news weighed on the market, from prospects of a partial U.S. government shutdown to slowing economic growth and expectations of only a modestly slower pace of interest-rate increases. The three major stock indexes suffered one of their worst weeks in years, plunging around 7% to 8%.