Markets adjusting to end of low interest rate era

US stocks finished more or less flat last week, but some investors are anticipating increased volatility in the coming weeks as the reality of rising interest rates sinks in and political uncertainty intensifies.

The stock and bond markets are acclimatising themselves to a shift in the global economy: the end of the low-interest rate era. With its policy decision on Wednesday, the Federal Reserve played a savvy psychological game. The central bank brought investors' expectations to such a low ebb ahead of the rate hike that what might have caused a market shock was received as a pleasant surprise.

About 10 days before the second hike in three months - the most sustained round of hikes since the financial crisis - central bank speakers began making warning sounds about the urgent need for hikes. Markets soon became convinced that the Fed's "dot plot", where board members mark their expectations for policy moves, was about to become clustered with a series of planned hikes. As it happened, however, central bankers left the dots unchanged. Rate-sensitive sectors such as telecommunications and utilities came roaring back after Wednesday's decision as if the low-interest rate era had never ended.