Speculation surrounding the interest rate hike
After months of speculation regarding the much-anticipated interest rate hike, the FOMC (Federal Open Market Committee) meeting on December 16, 2015, finally ended investors’ wait. The FOMC announced the interest rate hike. The Fed decided to increase the short-term rates by 0.25%. It’s expected to be 0.25%–0.5% in the future.
Stock market blossoms after the rate hike
Investors reacted positively to the rate hike. There was heavy buying in the US market. The Dow Jones Industrial Average (DJIA), the S&P 500, and NASDAQ all ended the day with positive returns of 1.3%, 1.5%, and 1.5%, respectively.
The top gainers were sectors known for paying huge dividends. The telecommunication and consumer goods sectors rose by 2% while utilities rose by 2.6%. The energy sector finished at the bottom because natural gas and oil prices continue to fall. The top gainers for December 16 were First Solar (FSLR), Honeywell International (HON), and NextEra Energy (NEE). They had positive returns of 9.7%, 5.7%, and 5.6%, respectively. The top losers for the day were Pioneer Natural Resources (PXD) and Marathon Oil (MRO). They had negative returns of 7% and 4.8%, respectively.
The rise in the construction business in the US signaled that the residential real estate industry will continue to support the economic growth. Construction of single-family houses reached its high. It rose by 10.5% to a $1.2 million annualized rate from $1.06 million. Shares of homebuilders rose. Beazer Homes USA (BZH) rose by 5.7%. Pulte Group (PHM) and D.R. Horton (DHI) rose by 3.6% and 2.5%, respectively.
The above graph shows the new and existing single-family home prices in the US.
In the next part of the series, we’ll discuss how the rate hike impacts REIT ETFs like the iShares US Real Estate ETF (IYR). We’ll also discuss why the Fed hiked the rates and how emerging markets will react to the higher rates.