Economic growth remained near expansion highs in the fourth quarter. U.S. real GDP growth was 2.6% from the previous year. Consumer spending and investment pushed the economy ahead, while falling exports were a drag on growth.
The U.S. enacted a 25% tariff on steel and 10% tariff on aluminum which went into effect March 23, 2018. The U.S. has engaged with China over allegations of asymmetrical trade policies and intellectual property theft, creating concern over the risks of a trade war.
Global growth forecasts for 2018 have been revised higher, most notably in the Eurozone. U.S. expected 2018 GDP growth is 2.6%, above the expansion average. The Eurozone has experienced an impressive economic recovery. In the third quarter, a real GDP accelerated to 2.6%, the fastest pace of growth since 2011. The House and Senate agreed to a final tax bill that was signed into law by President Trump on December 22nd. The bill, formally known as the Tax Cuts and Job Act, represents a major overhaul of the U.S. tax system.
Developed and emerging economies have exhibited coordinated positive growth for the first time in this recovery. Absolute growth remains subdued relative to history.
During the second quarter, economic releases have begun to miss expectations in the U.S. and U.K. after much upside surprise. The Eurozone continued to deliver positive surprises, but by a smaller margin. Heightened expectations help to explain some of the recent date disappointment.
The U.S. presidential election results took many investors by surprise. After an initial overnight
plunge in the futures market, U.S. equities rallied on expectations of a more pro‐business regulatory environment and the possibility of large‐scale fiscal stimulus. U.S. equities may possess greater upside potential post‐election.
The US equities market finished the first quarter of 2016 modestly above where it began the year, despite dipping over 10% by mid-February. Markets suffered from concerns of negative news related to China’s growth and currency, falling commodity prices, and the possibility of a US recession. After some moderately positive economic numbers, a stabilization of commodity prices, and a more cautious tone from Janet Yellen on the pace of future rate increases, the markets stabilized, and then rebounded in March. The S&P 500 index rose 1.4% in the first quarter.
Even though the equity markets embarked on a price recovery in the fourth quarter of 2015, most could not erase losses from earlier in the year. In the last month of 2015, the Federal Reserve raised its target rate for federal funds 25 basis points after nearly seven years of near-zero interest rates. US equities embraced the Fed’s tightening in stride, causing the S&P 500 index to rise 7.0% in the fourth quarter. Small Cap Stocks, as measured by the Russell 2000 index, continued to lag large cap equities, appreciating 3.6%. Overall, the Russell 3000 index increased 6.3%.
The third quarter of 2015 brought turmoil to many asset classes around the world amid concerns over global growth and the timing of the Federal Reserve’s first rate hike since 2006. Investors reacted to this uncertainty. Perceptions of risks rose and volatility spiked. As a result, the S&P 500 index declined 6.4%, Small Cap Stocks, as measured by the Russell 2000 index, dropped 11.9%, and the broader Russell 3000 index lost 7.2% for the quarter. For the 1-year period ended September 30, 2015, these indexes returned -0.6%, 1.2%, and -0.5%, respectively.
Many forecasters, including those at the Federal Reserve and the International Monetary Fund have repeatedly overestimated the economy’s strength, both in the U.S. and around the globe. They’ve predicted faster economic growth than has occurred. Extended valuations, the decline in corporate earnings, and investor’s sentiment in the European markets have slowed the U.S.
A very strong August for the market was bookended by weak performance in both July and September. Investors are grappling with the ramifications of improving economic conditions in the U.S. that are leading to a wind down of Federal Reserve accommodative policy. While good news, it comes at a juncture where stock valuations on the whole already reflect the fact that we are more than 5 years into this bull market. Concerns about weaker global economic growth have led to a sudden strengthening in the U.S.
There is a growing realization that monetary policy on an extraordinarily easing mode can have negative effects on risk taking and how that will get recalibrated over the next two years as policy makers move to normalization. The good news has been in U.S. job growth. Despite lower than expected GDP stats for the first quarter, the labor market in the U.S. seems to have moved to a firmer footing.
The S&P 500’s bull-run marked its fifth anniversary in February this year. Over this time period, global equity markets have endured a near collapse of the Eurozone, serious and ongoing geopolitical issues, and sluggish GDP and corporate revenues. None of these concerns have been sufficient to derail the liquidity-fueled equity markets. However, the return of frostier relations between the West and Russia, talk of an emerging tech bubble, and uncertainty relating to the end of quantitative easing, has left investors feeling a sense of unease as markets progress into 20
The stock market finished 2013 with its biggest annual gain in over a decade—up over 30%—and also marked its fifth consecutive annual gain. Whereas one year ago investors were concerned about the “fiscal cliff” and whether the economy could avoid a double-dip recession, inputs now support the view that economic growth will sustain itself and likely improve in 2014. The Federal Reserve has also made headlines with various announcements about the gradual withdrawal of quantitative easing. While this is likely to drive further volatility, the positive background is that the U.S.
The discussion about a potential tapering or slowing down of the Federal Reserve’s latest quantitative easing program led to a pull-back in the major indices. Concern over the Federal Reserve’sintention to reduce its quantitative easing program caused a rout in the fixed income markets. In two short months, the yield on the 10-year Treasury note jumped 80 basis points, steamrolling bond prices along the way. The Barclays Capital Aggregate returned -2.3% for the quarter and -0.7% forthe year.
U.S. equities surged during the quarter, with many of the broader U.S. indices up low double digits. Many of the improved macroeconomic conditions have been aided by the Federal Reserve’s continued accommodative interest rate policy, and with inflation below its 2% target and unemployment well above its 6.5% objective. The S&P 500 index rose 10.6% for the first quarter of 2013, while the DJIA and NASDAQ returned 11.9% and 8.2%, respectively.
Heightened fears over the U.S. fiscal cliff outweighed numerous positive indicators in the fourth quarter of 2012 as the S&P 500 index fell 0.4%. The decline occurred despite the resolution of U.S. elections and the Federal Reserve’s commitment to keep its target interest rate near zero and buy U.S.
Fears over the U.S. fiscal cliff and a pronounced slowdown in China have limited upside gains in risk markets in the wake of the quantitative easing throughout the developed world. The Federal Reserve announced QE3, which allows for unlimited MBS purchases, until the labor market improves.