When the US Federal Reserve, "the Fed", after 2008 was decreasing interest rates, the saying "don't fight the fed" was often used. This meant that aligning your investment strategy with the direction of the Fed is thought to be a good strategy as interest rates are used to derive values of many assets including most stocks and bonds. Interest rates also affect economic performance.
On September 26, 2018 the FOMC released their statement. In the statement they said:

Information received since the Federal Open Market Committee met in August indicates that the labor market has continued to strengthen and that economic activity has been rising at a strong rate.

They also said:

Job gains have been strong, on average, in recent months, and the unemployment rate has stayed low. Household spending and business fixed investment have grown strongly.

As a result the FOMC raised the target range by 0.25%. This was the third increase this year and another is expected at the December meeting.
Looking forward, we can use the "dot-plot" to estimate what the committee's estimates for future rates are. There is a chance that economic data changes which causes the FOMC to change their view and hence change their expectations and even change the future expected interest rate decisions.
Estimates for the next three years at year end are:

  • 2018: 2.4%
  • 2019: 3.1%
  • 2020: 3.4%
  • Long Run: 2.9%

What this says to me is that the direction of interest rates are up and that by the end of next year we may see a 3.1% Fed rate.
In the line of "don't fight the fed" it means that interest rates are increasing. As such, investments that are sensitive to increases in interest rates will be affected and things like bonds, particularly long dated bonds, will be affected.
On the equity side, in times of increasing interest rates and a growing economy, companies that are defensive in nature will not fair as well as they typically have fairly controlled revenues such as companies that have government regulation, think utilities, or long term contracts, like pipelines. In times of economic contraction, these will do better relative to more cyclically oriented stocks as they have a perceived level of safety.
In times of increasing interest rates, more cyclically oriented stocks do well as investors seek out higher levels of return to compensate for the increasing rates. Increasing interest rates also show that the economy can handle higher interest rates without being hurt or that the economy is growing too fast and the Fed is attempting a soft landing.
The take away for us is that interest rates are increasing and portfolios that we manage will be aligned according to that thesis. When things change we will adjust but as of the time of this writing, that is our current positioning.
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