Part of it is the drop in oil. Part of it is the stronger dollar. If you take those two things out, we don’t have strong earnings growth, but we actually do have some earnings growth, and that’s actually really important.
And frankly, if we see that, there’s worrying signs in the high-yield market. Energy and metals and mining represent about 20% of the high-yield index. I could see tightening in credit conditions as a result of a credit event around commodities, and my guess is 2016 is going to be pretty disappointing as a result.
Fortune Magazine
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12/15/2016
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What’s News
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♦ U.S. stock indexes rose amid a reprieve in the junk-bond rout. The Dow gained 156.41 points to 17524.91.
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The Wall Street Journal
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12/16/2015
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Emerging Markets Divided on Fed
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It the central bank raises the federal-funds rate on Wednesday as expected for the first time since 2006, many central banks in emerging markets won’t be going along for the ride. Instead policy makers from Mexico to Turkey will embark on a journey that many analysts and traders expect to last a year or more, of constantly choosing between two unhappy extremes: keeping rates low and accepting the possibility that would trigger another round of damaging capital outflows, or choosing to keep pace with the Fed and possibly sending struggling domestic economies into recession.
…Emerging-market asset prices have been hit hard over the year by the plunge in the energy sector and the slowdown in trade driven in part by China’s economic retrenchment.
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Natural-Gas Prices At Lowest Since ‘99
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Natural-gas priced dropped in the lowest level since 1999 as concerns about weak demand continued to weigh on the market.
The natural-gas market is oversupplied due to weak demand and continued robust production.
Analysts say that even if a bout of cold weather arrives, there is ample gas in storage to meet any spike in consumption.
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The Wall Street Journal
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12/16/2015
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Nicole Friedman
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Fed Nudges Rates Higher
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The Federal Reserve said it would end a seven-year experiment with near-zero interest rates by raising its benchmark rate and emphasizing a plan to lift it gradually over the next three years.
The move marks a test of the economy’s capacity to stand on its own with less central-bank support to spur continued spending and investment by households and businesses.
“The Fed’s decision today reflects our confidence in the U.S. economy,” Fed Chairwoman Janet Yellen said Wednesday…..
Investors took the upbeat message to heart. The Dow Jones Industrial Average rose 224.18 points, or 1.28% to 17749.09.
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The Wall Street Journal
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12/17/2015
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Jon Hilsenrath & Ben Leubsdorf
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Emerging Markets Face Currency Street
Rising rate promise to pinch economies already struggling with global slowdown
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A Fed-induced strengthening of the U.S. dollar could spell deeper pain for countries such as Turkey, Russia and Brazil, where firms have borrowed heavily in the U.S. currency. Weaker local currencies make paying dollar debt much tougher.
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The Wall Street Journal
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12/17/2015
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Ian Talley
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For Consumers, an Uneven Impact
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The prime lending rate, which usually hovers above the fed-funds rate, will go to 3.5% from 3.25%.
In a rising-rate environment, deposit-rate increases typically lag behind increases in loan rates by month, which is why banks can make more money when rates go up. By contrast, the yields on money-market mutual funds rise more quickly, and some funds are expected to raise the rate on those savings products within days.
When the Fed lowered interest rates near zero in the wake of the financial crisis, it ushered in a difficult period for bank profits, even as the broader economy slowly recovered. Banks’ lending profitability steadily declined through the recovery.
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The Wall Street Journal
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12/17/2015
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Rachel Louise Ensign
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Stronger Dollar Is Businesses’ Top Worry
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American businesses fretted that the first interest-rate increase in nearly 10 years came at a time when a strong U.S. dollar already is sapping demand for exports and low commodity prices are weighing on growth in the industrial economy.
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The Wall Street Journal
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12/17/2015
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A Wall Street Journal Roundup
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Commodities Drop Anew
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Prices for most raw materials fell, a day after the decision by the Federal Reserve to raise interest rates compounded the pressure on an asset class already suffering from weak demand and persistent supply gluts.
Investors fear that the Fed’s tighter monetary policy will further sap demand from emerging markets and many raw materials, as it boosts the dollar and makes it more difficult for countries with debt denominated in the U.S. currency to meet obligations.
Gold settled at a six-year low, down 2.5%, to $1,050.80 a troy ounce, weighed down by the prospect of higher interest rates and scant inflation.
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The Wall Street Journal
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12/18/2015
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Ira Iosebashvili
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What’s News
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♦ U.S. stocks tumbled on another decline in energy shares. The Dow slid 253.25 points to 17495.84.
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The Wall Street Journal
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12/18/2015
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Fed Hikes But Some Rates Veer Lower
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On the day the Federal Reserve implemented its plan to raise interest rates, driving up overnight borrowing costs, broader market forces conspired instead to drive other U.S. interest rates down.
The Fed increased its overnight target rate for lending between banks early Thursday, hitting 0.35%. But yields on Treasurys-from one-month bills to 10-year notes-fell as demand from investors drove prices higher.
It is a conundrum that Fed officials have grappled with for months…
While the Fed can orchestrate a rise in its overnight target rate, buying and selling by investors worldwide largely dictate the movement of yields in the $12.8 trillion Treasury market, a forum that effectively sets the borrowing rates for everything from mortgages to corporate loans.
Strong global demand for U.S. Treasurys, which tends to push down yields, is potentially creating conflict with the central bank’s plans to raise U.S. interest rates.
Treasurys are being sought out by numerous sources now, thanks to soft global growth, regulatory changes that increase interest from banks and money-market funds, among other institutions, and investors and banks boosting cash holdings at a time when markets are broadly perceived to be fully valued and potentially vulnerable to a shock.
Meanwhile the 10-year U.S. Treasury yield fell to 2.24%....
Thursday’s decline in the 10-year Treasury yield underscores the manifold challenges facing the Fed.
The Dow industrials on Thursday declined 253.25 points, or 1.4%, to 17495.84, more than reversing Wednesday’s 224-point gain. Selling was broad-based, led by a fresh decline in energy shares….
Keeping rates higher is expected to be particularly tricky at year-end, when many investors unwind longer term bets and move into short-dates securities and cash, and banks rein in their activities.
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The Wall Street Journal
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12/18/2015
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Katy Burne
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Fed Move Gets Mixed Reaction From Central Banks
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Anticipation of higher interest rates and stronger growth in the U.S. have pushed up the value of the dollar over the past year. That in turn has hit companies in emerging markets that borrowed heavily in dollars during the low-rate period. A stronger U.S. currency is making it more expensive to pay off those debts.
The Fed’s rate increase marks the start of a bout of divergence between the U.S. and central banks in the Eurozone and China, which are pursuing expansionary policies.
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The Wall Street Journal
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12/18/2015
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Harriet Torry
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Big Junk Dealer Weighs in on Rout
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The executive overseeing Wall Street’s top high-yield bond desk says the market for such debt isn’t in a bubble, even as he forecasts sizable losses across the industry in the short term.
Junk bonds have tumbled this year, hitting four-year lows that have prompted investor outflows and sharp sell-offs in major asset managers.
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The Wall Street Journal
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12/19/2015
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Emily Glazer
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Dow Ends Week With Slide
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In two days after the Federal Reserve gave investors exactly what they expected, the Dow Jones Industrial Average posted its steepest loss since a late-August plunge.
The back-to-back selloff erased 621 points from the blue chips-sending the Dow to its lowest level in two months and wiping out a three-session winning streak logged around the Fed’s liftoff for interest rates.
The fizzled rally underscores the difficult backdrop across markets as investors prepare to close out what is shaping up to be worst year for U.S. stocks since the financial crisis.
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The Wall Street Journal
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12/19-20, 2015
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Dan Strumpf
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Forecasters Bruised by Tough 2015
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This year, popular stock-market predictions didn’t always pay.
Oil prices were supposed to fall-but not by this much. Low energy prices were supposed to be a windfall for consumers and the companies that sell to them-but consumers didn’t spend as investors expected. The Federal Reserve was supposed to raise rates and lift the fortunes of bank shares-but the Fed didn’t act until the end of the year, and financial stocks languished.
Much of the year’s gains were concentrated in a small number of individual stocks, while popular macrolevel bets were dashed.
Last week’s volatile trading continued to upend the forecasts.
The financial and energy sectors of the S&P 500 have been laggards in 2015.
S&P 500 Index and sector performance this year:
S&P 500 -2.59%
Financials -5.51%
Energy -25.25%
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The Wall Street Journal
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12/21/2015
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Dan Strumpf
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What to Watch
Investors better get used to wild stock swings
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….volatility typically picks up after the start of a rate-tightening cycle, says Sam Stovall, U.S. equity strategists at S&P Capital IQ.
In fact, volatility was already on the rise going into the Fed meeting. Nearly two out of every three days this December, the S&P 500 rose or fell 1% on a closing basis, Stovall says. That is double the fewer than 30% of all trading days in 2015 that have had a 1% rise or fall.
If history is any guide, the swings in stock prices will get even more jarring from here.
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USA Today
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12/22/2015
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David Craig
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What’s News
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♦ The Dow advanced 165.65 points to 17417.27 in light preholiday volume as commodity prices rose.
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The Wall Street Journal
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12/23/2015
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What to Watch
A look ahead to 2016: One strategist’s call
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David Joy, chief market strategist of Ameriprise Financial, weighed in on 2016 in a client report. He says there are a few “important variables” that will determine if stocks go up or down next year.
He cites Federal Reserve rate hikes (and monetary easing by foreign central banks), the performance of the dollar and China’s economy as three keys.
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USA Today
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12/23/2015
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Adam Shell
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The Economy’s Big Weakness
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Our economic trend that hasn’t done its bit for this 6 ½-year recovery: capital spending.
Hiring has improved, stock markets have rallied and consumer confidence has rebounded.
But U.S. corporations remain hesitant to deploy funds to new projects and equipment, or to upgrade facilities and technology. Instead, companies continue to shower shareholders with record levels of dividends and buy-backs.
This skittishness to spend has hurt productivity, weighing on the economy’s long-term growth prospects.
The lack of capital spending has taken an economic toll. U.S. economic growth is on pace to expand at less than 3% for a 10th consecutive year, the longest stretch in the postwar era.
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The Wall Street Journal
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12/23/2015
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Steven Russolillo
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What’s News
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♦ Money managers remain reluctant to by junk bonds, despite a selloff in the distressed-debt market.
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The Wall Street Journal
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12/24/2015
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What’s News
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♦ U.S. stocks rose as an oil-price rally sent energy shares surging. The Dow gained 185.34 points to 17602.61.
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The Wall Street Journal
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12/24/2015
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Financial Forecast 2016
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“Recessions follow expansions like night follows day”, says Ruchir Sharma, head of emerging markets and global macroeconomics at Morgan Stanley Investment Management. The only question: Where is the fault line?
The Fed has begun to raise interest rates as Europe and other parts of the world are lowering them to buoy growth. The means the world is headed for a “Great Divergence” in monetary policy.
That will take the global economy into new territory. With the U.S. in recovery, both rates and the dollar are likely to go up. That will make American goods more expensive and put the U.S. manufacturing sector under pressure. It’s possible that European manufacturing may consistently outpace that of the U.S. for the first time since the Great Recession.
That is one reason that some smart observers like Mohamed El-Erian, the chief economic adviser to the global financial firm Allianz, are predicting a 25% to 30% chance of return to recession in the U.S. by 2017.
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TIME Magazine
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12/28/2015
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Rana Forooha
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Chinese Markets Still Riding High
After summer selloff, investors appear to be bullish as Beijing maintains its support
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Despite a summer swoon, the stock market hasn’t lost its appeal for many Chinese investors.
The Shanghai Composite Index is on track to end the year as one of Asai’s best-performance major benchmarks, up 9.3% as of Monday’s close, despite losing as much as 43% of its value over the summer.
The Shenzhen Composite Index has risen 63% this year and the ChiNext, composed of growth stocks and sometimes referred to as “China’s Nasdaq”, is up 86%.
By comparison, Hong Kong’s Hang Seng Index has lost 7.1% and Australia’s S&P/ASX 200 is down 3.8%. Japan’s Nikkei Stock Average is up 8.2% and South Korea’s Kospi has gained 2.5%. The S&P 500 is down 0.1%, while London’s FTSE 100 is down 4.7%.
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The Wall Street Journal
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12/28/2016
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Retirement Bogeyman
It may seem dead now, but inflation could wreck your golden years. What’s your insurance policy?
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Complacency is never in order with this animal. The present 0% rate blends an upward march of 2% in the cost of services with a collapse in the price of oil. If commodities rebound over several years, 4% inflation could surface.
Even 4% inflation does a lot of damage to your lifestyle. Over 18 years it cuts the value of a dollar in half. If it comes on suddenly it savages long-term bonds.
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