A Guided Path Informs Your Decisions
Subsequent to the election, U.S. stock markets turned in a solid fourth quarter performance on hopes for a growth revival. Government bond yields bounce off historic lows. The widely-expected Fed rate hike, along with rising growth and inflation expectations, have driven yields higher (and bond prices lower). A strong dollar hindered returns of overseas markets (when converted into dollar terms). Earnings prospects of foreign companies, however, are improved. U.S. valuations are elevated, and the outlook for U.S. stocks may be muted unless a meaningful improvement in corporate earnings is seen. Monetary policy supported U.S. stocks during the recent market cycle, even as the economic expansion has been tepid. For the next leg of this bull market, fiscal policy will likely be relied upon to help boost earnings growth. Stock markets in developing regions bottomed out earlier in the year but anti-trade rhetoric and a rising dollar were a headwind in Q4.
The third quarter of 2016 ended on a much more positive note than it started. Still reeling from the effects of Britain’s decision to leave the European Union, global investors showed increased demand for the safe haven of U.S. Treasuries, resulting in the 10-year U.S. Treasury yield hitting a record low on July 6th. Bearish investor sentiment, however, quickly abated as positive U.S. economic data, combined with broader acceptance of a “lower for longer” interest rate environment, drove stock returns higher.
The second quarter of 2016 started off with strong positive returns across the global equity markets.
The economic backdrop changed very little as the year started with uncertainty in the markets.