Henderson: Fed hike reaction - expect markets to be volatile in 2017

As expected, the Federal Reserve (Fed) voted to raise US interest rates by 25 basis points. With the US unemployment rate at its lowest point since the Great Recession and strengthening inflation figures, Fed officials felt it was appropriate to raise rates going into next year. With expectations for higher inflation next year, we would anticipate the Fed to continue to raise rates in 2017. Currently, Fed officials are forecasting three increases next year, and while we think that may be optimistic, we do believe rates will increase at a faster pace going forward.

Expectations for faster growth and higher inflation rates are the result of president-elect Donald Trump's plans for policy change; however, we would argue these plans are short on details and markets could be let down if policy negotiations stall. As new policy details emerge, we expect markets to be volatile in 2017. As always, we continue to adhere to our high quality philosophy and the nature of the companies in which we invest: specifically, these are companies with the potential for high degrees of recurring revenue, earnings visibility and high organic growth rates. We believe these are exactly the types of companies that our portfolios should have exposure to in an environment such as this.