US stocks continued to climb in December driven by the tax cut package being signed into law. Stocks posted new all-time highs during the month and had their best year since 2013. The tax overhaul reduced the top corporate tax rate from 35% to 21%, reduced the top individual income tax rate from 39.6% to 37% while also raising the income thresholds, and doubled the estate and gift tax exclusion. With the tax cut package analysts are projecting double digit corporate earnings growth each quarter next year. Economic news remained solid in 2017 and ended the year on strong footing. US companies added 228,000 new employees in November topping expectations and the unemployment rate remained at 4.1%. US housing starts hit their highest level in over a year in November, holiday shopping rose 4.9% for the best sales pace since 2011, and consumer confidence in December remains near a 17 year high. In the third quarter GDP grew at a 3.2% rate its fastest pace in more than two years. Oil prices climbed on declining inventories to end the year over $60 a barrel, their highest close since June 2015. US stocks rose 1.00% in December and jumped 6.34% for the quarter. In 2017 US stocks climbed 21.13%.
Foreign stocks surged in December and outpaced US stocks for the year for the first time since 2012. Global growth was strong helping power stock performance with all 45 countries tracked by the Organization for Economic Cooperation and Development on pace to expand in 2017. The ECB estimates the Eurozone grew by 2.4% in 2017 for its fourth straight year of growth and business and consumer confidence are at their highest level since 2001. An agreement was reached between the UK and the EU after six months of talks allowing for negotiations to move forward on a trade deal and a post Brexit transitional period. A revision to Japan’s third quarter GDP growth showed that GDP was stronger than expected and the country has now posted 7 straight quarters of growth. Manufacturing activity in China has topped forecasts recently, but analysts expect GDP growth to slow from its current pace. Emerging markets outpaced developed markets over December, the fourth quarter and the full year. In December, international stocks jumped 2.35% taking their fourth quarter return to 5.32%. For the year they were the top performing asset class surging 27.47%.
Bonds rose over the month as interest rates remained relatively steady. In the Fed’s last meeting of the year, they voted to raise the Fed Funds rate a quarter percent to a range of 1.25% to 1.50%. It’s the third increase this year. They kept their expectations of three interest rate increases in 2018 the same as at earlier meetings. Over the year the yield curve flattened with interest rates for short term bonds rising the most driven by the Fed’s interest rate increases and interest rates for intermediate to longer term bonds edging down. The 10 year Treasury yield ticked down over the month ending at 2.40%. It is also slightly lower than the 2.45% level where it began the year. This compares to the 2 year Treasury yield which rose 69 basis point to end the year at 1.88%. For the month and year, generally, longer term bonds outpaced short term bonds and credit and muni bonds were the top performing sectors. The broad bond market rose 0.46% in December and was up 0.39% for the quarter. For 2017, the total bond market gained 3.54%.
|US Stock (Russell 3000)||1.00%||6.34%||21.13%|
|Foreign Stock (FTSE AW ex US)||2.35%||5.32%||27.47%|
|Total US Bond Mkt. (BarCap Aggregate)||0.46%||0.39%||3.54%|
|Short US Gov. Bonds (BarCap Gov 1-5 Yr)||-0.01%||-0.40%||0.69%|
|Municipal Bonds (BarCap 1-10yr Muni)||0.64%||-0.22%||3.49%|
|Cash (ML 3Month T-Bill)||0.11%||0.28%||0.86%|