New Regime, Newfound Optimism
Wednesday, January 11, 2017
- To the surprise of many, it was bonds that sold off in the aftermath
of the election, while stocks rallied into December and the Dow
Jones Industrial Average climbed towards an unprecedented
height of 20,000.
- For the year, the S&P 500 Index finished the year up 12%, a return
nobody expected in February when the index was down 10%
and off to its worst start in history.
- Bond yields have risen rapidly, with the 10-Year Treasury yield up
more than a full percentage point since its July bottom.
- The Barclays Aggregate Bond Index dropped 3% last quarter, its
largest quarterly drop since 1981.
- The U.S. Dollar has surged to a 14-year high against a basket of 16
other currencies (WSJ Dollar Index) on the heels of the election
and the Fed’s move to raise interest rates.
- Thus far, markets have taken an optimistic view of the
presumptive shift in policy dynamics.
- Economists are revising GDP forecasts for stronger U.S. and global
growth. Inflation expectations are back, as TIPS breakeven rates
jumped above 2.0% following the election.
2016 may have come to an end, but it will not soon be forgotten.
Whereas 2015 was marked by flat and idling markets, 2016 was
a roller coaster of plunges and surges amidst political twists
- For those investors who were willing to ride the ups and downs,
2016 provided surprisingly solid portfolio returns, particularly for
higher risk investors.
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