As I indicated in Tuesday’s summary the Fed will likely raise interest rates modestly but add plenty of “dovish” language.

Markets loved this allowing for outsized gains heading into year-end better performance.

There’s a major disconnect between Yellen’s rosy view of the economy.

In that regard she often repeats her ongoing view of economic conditions as “solid” and any negative conditions as “transitory”. Yet economic data over 2015 remains quite weak. Just today gross Mortgage Applications declined (-3% vs prior +0.4%); Industrial Production fell (-0.6% vs prior .04%); PMI Manufacturing Index Flash fell (51.3 vs prior 52.6) and Crude Oil Inventories rose sharply (4.8 million bbls vs prior -3.6 million bbls). The only gain was an increase in Housing Starts (1.175M vs prior 1.062M) and permits aren’t valuable since many to move to “starts”.

Yellen continued to forecast greater future economic growth over the next two years citing better and growing labor conditions. She mentioned but brushed off the weak quality of both limited income improvements and large amount of part time work while not addressing the number of people out of the work force. Her and the committee’s forecasts for both inflation and economic growth as just guesses. Further while acknowledging weakness globally, suggested the strong (“solid”) U.S. economic growth is helping global markets grow. (That was laughable given weak overseas economic conditions.)  

My own thinking is aligned with economist Edgar Fiedler: “If you have to forecast, forecast often.”

No matter since markets rallied sharply given investor views that “accommodative” remains the order of the day.

Market sectors moving higher included: Everything except…

Market sectors moving lower included: Energy (XLE), Crude Oil (USO), Bonds (TLT) and Volatility (VIX).