After beginning the day on a down note, the major market averages appeared to be headed for another unenthusiastic day leading into the presidential inauguration. In fact, for most of the day the major averages saw little changes as investors held their cards close the vest, revealing little about their market bias. However, with an hour left to go in the trading day investors tuned in to listen to the prepared speech of Federal Reserve Chairwoman Janet Yellen before the Commonwealth Club in San Francisco.
In her speech Yellen indicated that the U.S. was in for a “nasty surprise down the road” if it delays too long in continuing to raise interest rates. She went on to say that it “makes sense” to raise interest rates “a few times a year” and that she sees rates rising to about 3 percent by the end of 2019. Though two percent is the Fed’s current inflation target, three percent is the rate she referrers to as the longer-run neutral rate.
Yellen shared that the rate increase in December was a reflection of the Fed’s confidence that the economy will continue to grow. However, according to the Fed the expected growth rate in the U.S. would be, “significantly slower than the post-world war two average”.
Yellen’s comments appeared to lift the mood on Wall Street as investors bought the dip, boosting the market averages higher. By the closing bell, the Standard & Poor’s 500 had risen 0.18 percent and the Nasdaq Composite gained 0.31 percent on the day. Conversely, the Fed President’s comments had a negative effect on bond prices sending the ICE U.S 20+ Year Treasury Bond index down 1.28 percent while lifting shares of financial companies.
This week’s leading countries appeared to be a result of short term rebounds off their recent lows. The top performing countries were led by the MSCI Turkey Investable Market index up 7.23 percent over the past five trading days, followed by the MSCI Chili Investable market index higher by 3.95 percent.