December was another strong month for the equity markets. The markets have surged based on expectations the new administration will reduce taxes and regulations and spend on infrastructure.
Small Cap stocks were the year’s biggest winner with the Russell 2000 soaring almost 20% for 2016. Valuations are now elevated.
Higher U.S. rate expectations continue to support a strong dollar, further curbing S&P 500 profit growth.
International equities continue to lag the U.S. markets, and have more potential for upside long term, based on valuations.
Our long-term outlook for emerging market equities is positive, however, we are cautious in the near term. We need to see stronger global economic growth and improved trade flows for us to become more positive.
Financial markets have priced in expectations of a fiscal stimulus, higher interest rates, rising inflation, and a stronger U.S. dollar.
The Fed raised short-term interest rates by 0.25% in December. This was the first time they have raised rates since December 2015.
According to the "second" estimate of the GDP from the Bureau of Economic Analysis, the third quarter 2016 gross domestic product grew at an annualized rate of 3.2%, compared to the second quarter GDP of 1.4%.
OPEC agreed to cut production in November. Oil prices have since rallied to over $50 per barrel, along with the prices of many energy companies.
The bond market settled down in December after suffering post-election losses. The yield on the benchmark 10-year Treasury ended the year at 2.44%.
Municipal bonds are now trading at yields equal to their Treasury counterparts, and provide attractive tax-equivalent yields.
- This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.