Long-term U.S. Treasury yields have been rising in the last four weeks, as traders anticipate the Fed to raise rates possibly as early as June. In addition, the dollar has continued to make impressive gains against all major currencies, as quantitative easing in Europe and Japan is under way.
The potential for rising interest rates in the U.S. and the steep rise of the dollar has led to a sell off of equities, bonds and commodities around the globe.
The S&P 500 index has retreated from its recent high and now in negative territory for the year. In spite of rising volatility, the chart of the benchmark Fidelity Spartan U.S. Equity Index Fund (FUSEX) shows that the long-term trend for U.S. equities is still bullish:
Another important development is that commodities and oil continue to deflate, reversing the short-lived rally in January:
In light of the rising dollar, the bear market in commodities and weak economic conditions in international markets, it is not surprising to see the Fidelity Select Energy Services Fund (FSESX), the Fidelity Select Gold Fund (FSAGX) and the Fidelity Latin America Fund (FLATX) amongst the weakest performers year-to-date:
The few sweet spots in the current market are sectors that are not sensitive to interest rates and rely on innovation to create growth. Perhaps the most notable is the health care sector, including biotechnology stocks:
The dynamic interplay of equities, bonds, currencies and commodities is shifting market conditions again. We continue to favor a conservative, risk averse investment approach in 2015.
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