The post-election Trump rally has looked unstoppable, even in the face of a Federal Reserve interest rate hike, but that could soon change as the consequences of volatile moves in other assets classes — currencies, commodities, and bonds — take their toll on the economy.
To simplify just a bit, investors need to worry about two main things heading into 2017: The risk of disinflation and the surging strength of the U.S. dollar.
The rise in the dollar was the single largest market response to the Fed's decision last week to raise interest rates for the first time since last December. In addition, policymakers updated their economic projections to include three quarter-point rate hikes next year vs. the two quarter-point hikes they were looking for back in September.
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