S&P 500; US Indexes Fundamental Forecast – December 14, 2016

U.S. equity indexes posted strong gains on Tuesday as investors prepared for Wednesday’s U.S. Federal Reserve interest rate and monetary policy announcements. The price action suggests investors have priced in the widely expected 25 basis point rate hike and that they don’t seem to be too concerned over the pace of future rate hikes.

In the cash market, the tech-based NASDAQ Composite closed at 5460.76, up 48.22 or +0.89%. The blue chip Dow Jones Industrial Average finished at 19911.21, up 114.78 or +0.58%. The benchmark S&P 500 Index ended the session at 2271.72, up 14.76, up +0.65%

It was a light day as far as economic data is concerned. The November NFIB Small Business Index came in at 98.4, beating the 94.9 October estimate. Import Prices fell 0.3 percent in November.

Forecast

On Wednesday, we’re going to be watching the Dow’s march towards 20,000. This will be a historical event that could lead to profit-taking. There are a lot of traders and investors out there who want to tell their friends and family that they sold the Dow or Dow futures at 20,000.

Later in the session at 1900 GMT the Fed will release its latest interest rate decision. It is widely expected to raise rates. This headline number is not likely to produce much of a reaction.

The Fed will also release its monetary policy statement. This will be watched for any surprises in the language.

Fed Chair Janet Yellen will hold a press conference at 1930 GMT and the Federal Open Market Committee board members will present their “dot plot” projections of the funds rate.

As far as the dot plots are concerned, there may be more risk of the median dot for 2017 being revised up then down. While some investors would conclude that they would like to see the median dot move higher in light of President-elect Donald Trump’s economic proposals, we may see the powers of super-dovish Janet Yellen squash any opinion that differs from her own.

In my opinion, the volatility and direction of the stock indices today will hinge on whether the median dot for 2017 rates move up or down. If it notches up then Treasury yields should continue to rise. This could give stock investors an excuse to book profits.

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