American Consequences - December 2017


The S&P 500 Index led all developed markets with a 3.1% return for the month. The markets rotated from growth to value. It was a great month for financials, industrials, and consumer discretionary. The bull market is now the second-longest in modern history. We have gone 104 months without a 20% correction. Personal consumption expenditures have also moved higher for 32 consecutive months. Average hourly wages increased and median household incomes are the highest on record ($60,000). The 10-year U.S. Treasury bond yield rallied to 2.42%. Gold was flat and commodities overall sold off 0.50%. Oil prices rallied to $58. There were large weekly inventory draws and the OPEC production cuts have held. A reduction in global tensions has producers cooperating and acting rationally. Global growth ruled the market moves over the last month. The tax reform debate in the U.S. was the single biggest driver. A preliminary bill was approved in both the House and Senate, and the GOP is hoping to have a final bill for President Donald Trump to sign before Congress goes home for the Christmas break. Markets in the U.S. responded by setting new all-time highs. In summary...

BITCOIN SOARED ON NEWS that the Chicago Board Options Exchange (CBOE) would start trading futures contracts. The cryptocurrency rallied more than 120% in anticipation of the inflow of institutional dollars. A solid macroeconomic backdrop kept equity buyers engaged. Global Purchasing Managers’ Indexes (PMIs) were robust and the revisions for third-quarter GDP growth were bumped up for Europe and the U.S. In Europe, political uncertainty in Germany, Italy, and Spain pressured markets. And there is a lot of skepticism as to whether Brexit will ever be enacted. The MSCI Europe ex-U.K. Index was off 1.7% and the U.K. market was down 1.9% for the month. The Bank of England raised interest rates for the first time in 10 years. In Asia, there was scant news. The Japanese market gained 1.5% on a strong PMI and consumer sentiment numbers. China’s economic data kept pace with forecasts. The central government did employ new credit- tightening regulations, resulting in markets that were off 0.2% for November. In the U.S., the hope for tax reform took center stage. The jobs picture remains robust with the unemployment rate at 4.1%. Jerome Powell was nominated as the new Fed chief and investors have voted with their dollars that he will continue on the same path blazed by Mr. Bernanke and Ms. Yellen. The Fed also raised interest rates another quarter of a point, its fifth increase in two years.

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12 | December 2017

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