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FED FINALE — What you need to know in markets this week

The final big event of 2016 is here: the December Federal Reserve meeting.

On Wednesday, the Federal Open Market Committee — the Fed committee that sets monetary policy — will announce its latest policy decision. And for the second year in a row, the FOMC is expected to raise its target range for the Fed Funds rate by 25 basis, or 0.25%.

“We expect the Fed to hike rates next week and we look for their interest rate forecasts for 2017 and beyond to be little changed from their last forecasts submitted at the September meeting,” writes JPMorgan economist Michael Feroli.

“More generally, we think the main takeaway to come out of this week’s meeting will be the sense that the Committee believes it’s too soon to say how the outlook has changed. Indeed, most Fed speakers since the election have indicated they are not going to guess how fiscal policy or other aspects of federal economic policy will change, but that instead they will only revise their forecasts once there is some true clarity on these aspects of the outlook.”

Federal Reserve chair Janet Yellen.
Federal Reserve chair Janet Yellen.

This announcement also comes amid a busy week of economic data that features the latest report on retail sales, readings on inflation, and the housing market.

Last week, markets got word from the European Central Bank that next March it would reduce its pace of monthly asset purchases, though extend the length of its program until at least December 2017. This week’s Fed meeting, then, will likely be further confirmation of the divergence in global monetary policy — the ECB and BoJ are staying easy (or even getting easier), while the Fed is tightening.

In US markets, last week saw the Dow, S&P 500, and Nasdaq each hit a new record as the Dow can now see its next big milestone — 20,000 — on the horizon.

US Treasuries, meanwhile, continued to sell off with the yield on the 2-year note hitting 1.13%, the 10-year hitting 2.46%, and the 30-year long bond hitting 3.15%.

Economic Calendar

Monday:

  • No major economic releases.

Tuesday:

  • NFIB small business optimism (96.6 expected; 94.9 previously)

  • Import price index (-0.4% expected; +0.5% previously)

Wednesday:

  • Retail sales, November (+0.3% expected; +0.8% previously)

  • Producer price index (+0.1% expected; +0% previously)

  • Industrial production (-0.2% expected; +0% previously)

  • Capacity utilization (75.1% expected; 75.3% previously)

  • FOMC rate decisions (0.50%-0.75% expected; 0.25%-0.50% previously)

Thursday:

  • Consumer price index (+0.2% expected; +0.4% previously)

  • Core CPI, year-over-year (+2.2% expected; +2.1% previously)

  • Initial jobless claims (256,000 expected; 258,000 previously)

  • Philly Fed manufacturing (9 expected; 7.6 previously)

  • Markit flash manufacturing PMI (54.1 expected; 54.1 previously)

  • Homebuilder confidence (63 expected; 63 previously)

Friday:

  • Housing starts (-7% expected; +25.5% previously)

  • Building permits (-1.6% expected; +0.3% previously)

A secular bull market

Stocks are at record highs, so is it time to be nervous?

Jeff Saut of Raymond James says absolutely not.

“I don’t think it’s frothy,” Saut said on Yahoo Finance’s “The Final Round” Friday afternoon. “Our model basically said it doesn’t matter who gets elected, the markets are staged to go to the upside.”

And to the upside markets have gone. Friday’s 142-point rally on Friday marked the 20th time in 24 trading sessions the Dow finished higher, and brought the blue chip index ever-closer to 20,000. But putting big milestone numbers on the stock market is not something, in Saut’s view, that is going to stop stocks from going higher here.

“I think we are in a secular bull market,” Saut said. “Secular bull markets tend to last 14 or 15 years. Are there pullbacks and drawdowns? You bet. But if you look at what’s going on around the world, endowment funds and pensions funds are figuring out there’s no way they can get to their targeted return without increased exposure to equities.”

Yahoo Finance’s Jen Rogers asked Saut if he sees an end to the bull market coming up.

Saut’s answer? “Nope.”

Further reading

Consumer confidence is near a 12-year high (Yahoo Finance)

The politically uncertain future facing BlackRock in the Trump era (FT)

People are worried about cash-back rewards (WSJ)

Coca-Cola COO James Quincey will take over for long-time CEO Muhtar Kent next year (Coke)

Here’s what happens when you give cash to the poor (Yahoo Finance)

What we talk about when we talk about “quality businesses” (Medium)

Investigators allege more than 1,000 Russian athletes doped at the London and Sochi games (AFP)

Conor Sen on baseball free agency-as-economic-indicator (Bloomberg View)

Myles Udland is a writer at Yahoo Finance; follow him on Twitter @MylesUdland

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