Unless you’re Gomer Pyle from television sitcom fame, market participants were prepared for the Fed’s recent rate increase. The big question, has the market been leading the Fed to increase interest rates, or has the Fed been leading the market by setting expectations for the purpose of not surprising market participants?
Although we still do not know the answer, both scenarios may have led us to the same outcome anyway. On December 16, the market was unsurprised and able to digest, without a catastrophic loss, the first increase in the federal funds target rate since 2006. In fact, yields on US Treasuries ended the day relatively unchanged from the previous trading period and in some cases below their highs for the year.
The existing Prudent portfolios and the new Dimensional Target Date Income funds are well positioned to deal with interest rate changes such as the one provided by the Fed earlier this month. If you have any concerns or questions about the market, please visit Dená Baker in Prudent’s office across from the hospital cafeteria.
The market’s ability to reflect the probability of different outcomes and events in security prices reinforces the greater importance of not worrying about the news of the day and instead focusing on asset allocation and diversification. Parsing information from “news” in an attempt to forecast future market activity has, in our opinion, always been a fruitless activity.
It’s better this time of year to worry about whether or not your holiday shopping is done and you are ready for all of the revelry with your friends and relatives. From everyone at Prudent Investor Advisors – Happy Holidays and we wish you a healthy and prosperous 2016!