The S&P 500 behaved more as I expected that it would during the first full week of December 2017, with stock prices dipping as investors shifted their forward-looking focus to 2018-Q1 in setting current day stock prices.

But ended up on Friday, 8 December 2017 at a level that would at first appear to be more consistent with their being focused on 2018-Q2. The reason for that has a lot to do with the positive jobs report that came out on Friday, 8 December 2017, which had the official unemployment rate hold steady from the previous month at 4.1%, but which is down a half percent from November 2016. The report was stronger than expected, which appeared to clear the way for the Fed to not just announce that they will hike U.S. short-term interest rates this Wednesday, 13 December 2017, but up to three more times in 2018.

The CME Group’s FedWatch tool is reflecting that assessment, where after a 100% probability that the Fed will hike rates on this Wednesday (with a 90.2% chance they’ll hike them to a target range of 1.25%-1.50%, and a 9.8% chance they’ll hike them even higher to the 1.50%-1.75% range), the Fed Funds Rate futures suggest additional hikes in at least the first quarter of 2018 (2018-Q1) and again in the third quarter of 2018 (2018-Q3).

Probabilities for Target Federal Funds Rate at Selected Upcoming Fed Meeting Dates (FedWatch tool on 8 December 2017) FOMC Meeting Date Current           100-125 bps 125-150 bps 150-175 bps 175-200 bps 200-225 bps 225-250 bps 13-Dec-2017 (2017-Q4) 0.0% 90.2% 9.8% 0.0% 0.0% 0.0% 12-Mar-2018 (2018-Q1) 0.0% 38.6% 54.8% 6.5% 0.1% 0.0% 13-Jun-2018 (2018-Q2) 0.0% 17.9% 44.7% 31.8% 5.3% 0.3% 26-Sep-2018 (2018-Q3) 0.0% 10.3% 32.8% 36.5% 16.9% 3.2%
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