Stock Market Investors Buy into Fed Predictions

Last Thursday night, Fed Chair Yellen and former Fed Chairs Ben Bernanke, Alan Greenspan and Paul Volcker took part in a panel titled, When the Federal Reserve Speaks. the World Listens. Fed Chair Yellen said that some slack remains in the U.S. labor market. She said that the Federal Open Market Committee FOMC is not trying to overshoot its inflation target of 2 but that 2 is a goal and not a ceiling. As of Friday, Fed fund futures are showing just a 51 chance of another 25-basis-point rate hike by the end of the December FOMC meeting, according to the CME website.

Kansas City Fed President Esther George (a FOMC voter) recently said that continued extreme monetary accommodation risks financial instability.

What is making headlines is ratings agency Standard & Poors, which reported that the global corporate default rate has hit a seven-year high as energy and mining companies suffer from very poor trading environments.

Negative interest rates and falling rates in general are weighing heavy on the financial sectors both here and abroad. In the past week, European banks led to a tumble in the heavyweight financial sector as money center banks, investment brokerages, asset management companies and life insurance names all traded lower in sympathy. The U.S. financial sector is not faring much better, down 4.7 year-to-date, per the chart of the Financial Select Sector SPDR ETF (XLF), the most widely traded basket of financials.