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Market Lab Report - Premarket Pulse 12/15/16

Major averages fell yesterday on mixed volume, closing near the bottom of their trading ranges. The majors had become a bit extended from their 10-day moving averages, so a pullback is not surprising.

As expected, the FOMC voted to raise the fed funds target range by 25 basis points to 0.50%-0.75%. The rate hike vote was unanimous. The Fed adopted a more hawkish stance as the so-called “dot plot” showed the central bank has now penciled in three rate hikes in 2017 instead of the two moves seen in September. Of course, they projected four rate hikes in 2016 but we only got one.

The Fed statement made no mention of the fiscal policy plans that have been outlined by Donald Trump’s economic team. That said, some analysts think the tax cuts and increased spending plans put forward by Trump's policies may spark growth but boost the deficit, requiring the central bank to raise rates higher to avoid an outbreak of inflation.

The Fed still expects GDP growth to average 2% over the next three years while unemployment stays close to 4.6%. Their view clearly signals a stronger economy thus they may have more room to hike rates in 2017. This hawkish stance may be enough to rattle markets into a very overdue correction, though many cross currents make such predictions pointless.

It is far better to watch price/volume action in real-time and position your portfolio accordingly. With yesterday's rate hike, the euro is trading at 13-year lows against the dollar at 1.04 to 1.

In economic news, both total CPI and core rose 0.2% matching consensus. On a year-over-year basis, total CPI is up 1.7% and core CPI has increased 2.1%. Jobless claims totaled 254,000 vs 256,000 consensus.

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