Wyatt Research Week in Review: Dec. 13-19

Wall Street, we have liftoff.
Following a full year’s worth of Federal Reserve theatrics that felt like a stuffily directed version of “Waiting for Godot,” the monetary masters finally decided the time was right to raise interest rates.
On Wednesday, the Fed raised the federal funds rate by a quarter percentage point. The new target fed funds range is 0.25%-0.5%, compared to the previous range of 0%-0.25%.
The move was widely expected. Futures traders had priced around a 75% probability of a rate hike heading into the announcement.
The real question surrounding the media event was the Fed’s outlook for future rate increases. The word of the day was “gradual.”
“The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen,” the official Federal Open Market Committee press release stated.
Fed Chairwoman Janet Yellen echoed the dovish tone in her prepared remarks.
“The process of normalizing interest rates is likely to proceed gradually,” Yellen said, “although future policy actions will obviously depend on how the economy evolves relative to our objectives of maximum employment and 2% inflation.”
The markets reacted with a sigh of relief.
The Dow Jones Industrial Average added 224.18 points on Wednesday, a 1.29% gain. The S&P 500 index finished up 1.45%, while the Nasdaq Composite Index gained 1.53%.

Dow, S&P 500 and Nasdaq Performance on Wednesday

Source: Yahoo Finance

One of the more intriguing moments of Yellen’s press conference came when she was asked if the recent junk-bond fiasco gave the Fed any eleventh hour pause before pulling the trigger on the rate hike.
Yellen downplayed the debacle that began last week when the Third Avenue Focused Credit Fund (TFCVX) took the unprecedented step of halting redemptions before consulting with the Securities and Exchange Commission. Yellen called Third Avenue “a rather unusual open-end mutual fund” with “very concentrated positions in especially risky and illiquid bonds.”
While Yellen offered reassurance that the broader market won’t end up on the junk heap, individual investors with junk-bond exposure are in a far less cheery mood. As Tony Daltorio noted in Tuesday’s issue of Daily Profit, “Distress in junk bonds began with the problems in the U.S. energy industry. … Even banking giant Wells Fargo (NYSE: WFC) says there are ‘stresses’ in its energy portfolio of loans.”
And it’s not just non-investment-grade bonds that have felt the pain.
As Steve Mauzy pointed out in Friday’s issue of Income & Prosperity, business development companies have also sold off over the past week, due to the fact that many BDCs “aggressively lent to similar precarious energy producers.” Yet Steve also identified two BDCs with little or no energy exposure that should stand to benefit from a rising interest rate environment.
Here are a few of my other favorite Wyatt Investment Research articles of the week:
Let’s Make a Deal: Breaking Down the DuPont-Dow Merger – The $130 billion merger between 213-year-old DuPont (NYSE: DD) and 118-year-old Dow Chemical (NYSE: DOW) is the biggest tie-up by far in the history of the chemicals industry. In a unique twist, the two companies will join, but then split into three more-focused companies. But will the 1 +1 = 3 split equal a win-win-win for shareholders?
A High-Yield Bank Stock at a Reasonable Price – Investors looking for high dividend yields in an industry that is set up well to profit from a rising interest rate environment should consider banks. And this high-yield bank stock, which trades for just 7.5 times 2016 earnings expectations, boasts a 4.5% dividend yield, which is more than twice the average yield of the S&P 500 index.
The Best Way to Cash In on Booming Auto Industry Sales – U.S. auto sales hit the 1.3 million mark in November, a 14-year high. Sales for 2015 are projected to eclipse 17.5 million vehicles, which would be an all-time record. But besides the obvious investment choices, which include the likes of automakers and car dealers, another auto-related industry is offering real value.
Will Walmart Pay Fend Off Apple Pay? – Wal-Mart’s (NYSE: WMT) launch of its own mobile payment system, Walmart Pay, is the final chapter in its defiant rejection of payment systems like Apple Pay. Apple Pay only works on Apple (NASDAQ: AAPL) devices. Android Pay from Alphabet (NASDAQ: GOOGL) and Samsung Pay from Samsung only work on Android devices. Wal-Mart’s new payment system will work on any mobile device – one of the key selling points that Wal-Mart is focusing on.
What Investors Should Know About Short Selling – While short selling is a frequently utilized method of benefiting from market downturns, it is a very risky practice, and is only suitable for the most sophisticated investors who are not afraid to take outsized risks.
Stabilize Your Portfolio With an Inverse ETF – Buying an inverse ETF is an alternative to short selling – and a worthwhile one for investors steeped in conventional long-only investing.
Top Growth Stocks Following the Fed Rate Hike – The best growth stocks following the Fed rate hike look to be in the mid-cap space – in particular the health care and tech-related industries.
Have a great weekend!