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Weekly Wrap: Market Records as Fed Signals Hike

Minutes from the Fed's meeting show possible interest-rate action "fairly soon." Plus, Kraft Heinz ends bid for Unilever, and Wal-Mart takes aim at Amazon.

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Jeremy Glaser: Stocks hit new records as the Fed gets ready to hike. Kraft walks away from Unilever, and Wal-Mart looks to fight back against Amazon. This time on the Morningstar Weekly Wrap.

Fed minutes released this week showed that the central bank is prepared to lift rates "fairly soon," potentially as early as the March meeting. The market still thinks a March increase is unlikely; the futures market currently has the odds at about 1 in 5. But amid signs of higher inflationary pressures more rate hikes in 2017 seem in the cards.

However the prospect of higher rates hasn't dented stock market enthusiasm as major indexes hit new records this week. Hopes for fiscal stimulus, lower tax rates, and regulatory reform keep driving prices higher.

Kraft Heinz's short-lived bid for Unilever ended last weekend as the prospects of having to raise the offer price and concerns over integrating corporate cultures weighed. But analyst Erin Lash doesn't think this is the end of Kraft Heinz's desire to consolidate the industry. 3G Capital Management, which is the majority shareholder of the firm, is known for its aggressive cost-cutting, but they are likely reaching the limit of how much they can cut from Kraft Heinz. This means they are going to be looking for other targets that have excess costs that they can squeeze out.

Wal-Mart reported another quarter of same-store sales gains in the U.S., with comps rising 1.8% in the fourth quarter. Analyst John Brick points out that these numbers look even better when accounting for the headwind of food-price deflation. Profitability slipped in the quarter as management continues to make big investments in e-commerce and wages to better compete against Amazon. We believe these investments will eventually bear fruit and see the shares as undervalued today.

And in case you missed it, on Morningstar.com this week, Christine Benz looked at the best ways for smaller investors to get advice. 

Jeremy Glaser does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.