Yellen Trumps Trump in Rate Hike Week

For most of the past four weeks, the market’s been moving higher due to the “Trump bump,” i.e., the optimism and expectations of renewed economic growth, lower taxes, lower regulation and fiscal stimulus from the incoming administration.

 

This week, that rally was put on pause, as the major market-moving event wasn’t about Trump… it was all about Janet Yellen and company.

 

On Wednesday, the Fed took action and raised interest rates for the first time in a year. The move, which increased the fed funds rate by 25 basis points, was widely expected. What wasn’t anticipated was the ratcheting up of rate hike expectations for 2017.

 

The Fed “dots,” which are just a plotting of where the Fed members think interest rates will be at the end of next year, now reflect as many as three 25-basis-point hikes to the federal funds rate in 2017. That increase in the dots did take the market by surprise, as most economists thought the Fed’s dots would only reflect two rate hikes next year.

 

The increased rate hike expectations, along with a clearly “hawkish” Yellen press conference, made it clear to us that interest rates are likely to go up at least a few times next year. Of course, this is by no means a certainty. Remember that this time last year the dots were calling for four rate hikes in 2016, and we only saw one.

 

Still, what Yellen also made clear is her intent to not let the economy run hot, particularly if President-elect Trump succeeds in adding more fiscal stimulus to the economy early in his administration… and as the economy is basically at full employment.

 

If we get a big stimulus package early, look for the Fed to move quickly to cut inflation off at the pass. If it does, that could create a headwind for markets, but that situation isn’t likely to come to pass until much later in 2017.

 

Still, we can tell by Wednesday’s post-Yellen-presser pullback that markets are at least a bit cautious in the face of an aggressively hawkish Fed, and that’s a dynamic we’ll be watching in the months to come.

 

As for the markets this week, Wednesday’s selling was followed by a bounce back of sorts on Thursday. Friday finished basically flat, and that led the Dow Industrials to a 0.44% gain on the week while the S&P 500 finished essentially flat (-0.06%). The NASDAQ Composite also was basically flat on the week (-0.13%).

 

As for some of our sector positions, we saw a decline in small cap stocks, which gave the ProShares UltraShort Russell 2000 (TWM) a nice boost (+3.41%). This is a position we are looking to exit on any material move to the downside in small caps (i.e. the upside in the inverse fund).

 

While most of our sector holdings were little changed from last week, we did see a continuation of the recent selling in gold and silver, and in mortgage REITs. Energy, healthcare and biotech traded to the upside in the week.

 

Now let’s recap last week’s new recommendations, along with the buy prices and exit points.

 

Income Portfolio

 

WisdomTree Emerging Markets High Dividend Fund (DEM)

Buy price: $38.13

Exit point: $34.31

 

This ETF seeks to track the price and yield performance, before fees and expenses, of the WisdomTree Emerging Markets High Dividend Index. That index is comprised of the best emerging market dividend stocks in the market today.

 

Growth Portfolio

 

Vanguard FTSE Emerging Markets ETF (VWO)

Buy price: $36.42

Exit point: $32.77

 

This ETF is one of the best ways to get exposure to the broad emerging market segment. It’s also a very low cost way, with an expense ratio of just 0.15%. The fund is pegged to the FTSE Emerging Markets All Cap China A Inclusion Index, which basically means the very best emerging market sector companies (excluding China’s A-share market).

 

Aggressive Portfolio

 

VanEck Vectors India Small-Cap Index ETF (SCIF)

Buy price: $43.17

Exit point: $36.70

 

This is a country-specific fund pegged to the fortunes of the India stock market. And because of its small-cap stock focus, it concentrates on India’s best domestic companies.

 

Finally, as the year winds down, markets will likely slowdown in terms of trading volume. That will give us an opportunity to concentrate on different aspects of this service that we want to make changes to in 2017.

 

Over the next several weeks, we’ll be introducing you to some of those exciting changes, so be sure to stay tuned. And, if you have any suggestions on how we can improve the newsletter or the weekly Hotline, please let us know.

 

All the best,

 

Doug

 

Current Income Portfolio: 10% WisdomTree Emerging Markets High Dividend Fund (DEM), 10% PowerShares Senior Loan ETF (BKLN), 10% iShares Mortgage Real Estate Capped ETF (REM), 10% O’Shares FTSE US Quality Dividend ETF (OUSA), 10% Guggenheim Multi-Asset Income ETF (CVY), 10% iShares U.S. Preferred Stock ETF (PFF), 20% SPDR DoubleLine Total Return Tactical ETF (TOTL), 10% DoubleLine Total Return Bond (DLTNX) and 10% cash.

 

Income Performance:

DoubleLine Total Return Bond (DLTNX), 24.42%

SPDR DoubleLine Total Return Tactical ETF (TOTL), 2.24%

iShares U.S. Preferred Stock ETF (PFF), 1.29%

Guggenheim Multi-Asset Income ETF (CVY), 15.30%

O’Shares FTSE US Quality Dividend ETF (OUSA), 7.15%

PowerShares Senior Loan ETF (BKLN), 0.95%

iShares Mortgage Real Estate Capped ETF (REM), -0.17%

WisdomTree Emerging Markets High Dividend Fund (DEM), -1.97%

 

Income Exit Points:

DLTNX: $10.70

TOTL: $48.50

PFF: $38

CVY: $17.75

OUSA: DFC sell signal

BKLN: $20.77

REM: $38.13

DEM: $34.31

 

Current Growth Portfolio: 20% Vanguard FTSE Emerging Markets ETF (VWO), 10% First Trust North Amer Engy InfrasETF (EMLP), 10% Health Care Select Sector SPDR ETF (XLV), 5% iShares Silver Trust (SLV), 25% Vanguard Total Stock Market ETF (VTI), 5% SPDR Gold Shares (GLD), 15% SPDR DoubleLine Total Return Tactical ETF (TOTL) and 10% money market (cash).

 

Growth Performance:

SPDR DoubleLine Total Return Tactical ETF (TOTL), 1.37%

SPDR Gold Shares (GLD), 2.39%

Vanguard Total Stock Market ETF (VTI), 13.32%

iShares Silver Trust (SLV), -7.85%

First Trust North Amer Engy InfrasETF (EMLP), 3.28%

Health Care Select Sector SPDR ETF (XLV), -0.29%

Vanguard FTSE Emerging Markets ETF (VWO), -2.14%

 

Growth Exit Points:

TOTL: $48.50

GLD: $114

SLV: $17

VTI: DFC sell signal

EMLP: $21.94

XLV: $62.83

VWO: $32.77

 

Current Aggressive Portfolio:

ProShares UltraShort Russell 2000 (TWM), -38.24%

VanEck Vectors Russia ETF (RSX), 10.59%

PowerShares Dynamic Biotech & Genome ETF (PBE), -3.98%

VanEck Vectors India Small-Cap Index ETF (SCIF), -2.59%

 

Aggressive Exit Points:

TWM: $32

RSX: $17.17

PBE: $38.61

SCIF: $36.70

 

Domestic Plan: Buy, International Plan: Buy, Gold Plan: Sell

 

Note: The following fund had a distribution

 

Ticker   Assigned Com      Date                      Dist Amount         Reinvst Price       New Share Fig

SPY                334.50           12/15/16              1.32893                 225.04                   336.48

Indicator	Close	39WAR	39WD	Wkly Chg	Wkly %Chg
Domestic Fund Comp	390,822.10	359,380.60	8.75%	-2091.24	-0.53%
Wilshire 5000	23,600.09	22,102.90	6.77%	-78.67	-0.33%
iShares Div Inc (DVY)	89.71	84.59	6.05%	-0.10	-0.11%
S&P SmCap 600 (IJR)	138.45	120.63	14.77%	-2.54	-1.80%
iShares US Core (IUSV)	49.68	45.37	9.49%	-0.19	-0.38%
Russell 1000 Grwt (IWF)	106.24	102.18	3.98%	0.01	0.01%
Spiders (SPY)	225.04	212.99	5.66%	-1.47	-0.65%
DJC	6,941.84	6,398.20	8.50%	-15.56	-0.22%
DJI	19,843.41	18,232.22	8.84%	86.56	0.44%
DJT	9,167.49	8,022.55	14.27%	-239.70	-2.55%
DJU	657.72	668.30	-1.58%	11.86	1.84%
OTCI	4,136.03	3,736.57	10.69%	11.29	0.27%
S&P 500	2,258.07	2,130.67	5.98%	-1.46	-0.06%
NASDAQ Composite	5,437.16	5,076.89	7.10%	-7.33	-0.13%
NASDAQ 100	4,914.86	4,642.62	5.86%	18.96	0.39%
Russell 2000	1,364.40	1,203.04	13.41%	-23.67	-1.71%
Value Line Composite	511.11	472.43	8.19%	-7.87	-1.52%
Intl Fund Comp	174,203.93	179,138.72	-2.75%	-2218.21	-1.26%
DJW	326.18	315.26	3.47%	-2.04	-0.62%
Fidelity Div Intl	33.14	34.18	-3.04%	-0.10	-0.30%
Artisan Int’l	25.69	27.35	-6.08%	-0.15	-0.58%
Price International	15.26	15.60	-2.20%	-0.45	-2.86%
Vanguard Int’l Growth	21.33	21.54	-0.96%	-0.29	-1.34%
		125DAR	125D%
Gold Fund Comp	33,111.06	44,753.63	-26.01%	-3337.14	-9.16%

 

Next Regular Update: Friday, Dec. 23, 2016

 

Telephone Hotline: (202) 464-9511

 

Dec. PIN: 914

 

Friday Hotline Legend–Price: Current price/NAV as of hotline date, 39WAR: 39 Week Average Reading as of Friday’s close, 39WD: 39 Week Differential-Percentage difference between the closing price and the 39 Week Average Reading, 125DAR: 125 Day Average Reading as of Friday’s close, 125DD: 125 Day Differential-Percentage difference between the closing price and the 125 Day Average Reading, Wkly Chg: Numerical change from previous Friday, Wkly %Chg: Percentage change from previous Friday.