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Q4 2016 Quarterly Market Overview

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.