The backdrop for an increase in the federal funds rate is seemingly there -- the U.S. has added an average of 200,000 jobs a month for the past twelve months. Unemployment has stayed below the 5% threshold generally defined as full employment. In late August, Federal Reserve Chairman Janet Yellen said the case for an increase in the federal funds rate had "strengthened."
Still, the Federal Open Market Committee (FOMC) chose to hold off raising rates in September, noting it would "wait for further evidence of continued progress toward its objective." That helped fuel the fire in the reach for yield, high-dividend paying stocks, on the basis of "lower for longer."
But with Fed Funds futures betting that the FOMC is likely to raise its main interest rate in December, it seems as if the reach for yield may be coming to an end and companies with high quality earnings and safe dividends will do well, while those who are just resting on a high-dividend yield will not be as lucky.
"The sensitivity to less than quality companies and interest rate changes is the important part," said Artko Capital portfolio manager Peter Rabover. "I think there's less room for companies who stock price rests on just dividends to see a higher stock price."
The yield on the 10-year U.S. Treasury is currently hovering below 1.6%, a level it hasn't seen since the first week of September, as traders pushed rates past the 1.7% level on bets the FOMC would raise rates.