The Fed will most likely announce a 1/4% rate hike this week. We will want to watch the stock market’s reaction, not just for a few days, but leading into European elections. They start this week in the Netherlands, in late April in France, and into the fall in Germany.
The market dislikes uncertainty and a Fed that may be anticipating more inflation due to administration policies may talk tougher than we expect. This would most likely tip the market towards uncertainty, especially if it’s perceived the Fed would be intentionally acting as a counterweight to administration policies.
As well, market participants (think institutions) will be watching election polling in the Netherlands, France, and Germany for further signs of an unraveling European Union. Political instability in Europe could certainly lead to more uncertainty about global trade after the Brexit vote, and in light of our administration’s view of global trade pacts.
So, in the context of a market that has had a 13% run since early November, let’s pay attention to these looming market influences. As per our February post, keep trimming laggards and take some profits in non-core positions. As well, it’s probably not too late to shorten maturities in bond portfolios.