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Market Lab Report - Premarket Pulse 12/12/16

Major averages rose Friday to close at record levels though on lower volume, finishing near the top of their intraday trading ranges. The NASDAQ-100 is a hair away from new all-time highs.

The Federal Reserve concludes its two-day meeting this Wednesday. CME Fed Futures place the odds of a rate hike at 94.9%. This will be the first rate hike this year, even though Yellen said last December to expect four rate hikes in 2016. Of course, slowing Chinese growth caused much volatility in the first quarter of the year. Meanwhile, countries with interest rates that have gone negative have yet to show commensurate growth. The risks in going negative seem to far outweigh any rewards as it is corrosive to financial structures.

The IMF can plead with the Fed to not raise rates when certain countries are still sitting with negative rates, and the ECB has extended its bond buying program all the way until December 2017, longer than expected. But with robust jobs growth, low unemployment, and low inflation here in the US, the Fed has room to hike. Spiking bond yields, a steepening yield curve, and a stronger dollar have all priced in a rate hike this Wednesday. Two more hikes are expected in 2017, economic strength permitting.

Over the weekend non-OPEC nations agreed to go along with the prior production cut agreement set forth by OPEC nations nearly two weeks ago. Oil stocks are moving higher, but we would not chase these moves, preferring instead to wait for constructive pullbacks.

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