Note: This post is an excerpt from Gould Asset Management’s Economic and Market Review for the Fourth Quarter of 2016. The excerpt is posted here for the benefit of our blog subscribers.
US Stocks Jump as Markets Digest Trump’s Surprise Presidential Victory
US stock markets finished 2016 on a strong note, rising 3.8% for the quarter and 12.0% for the year, as measured by the S&P 500 stock index. Donald Trump’s surprise win proved to be the defining event of the quarter. Markets surged on the prospect of increased infrastructure spending, lower personal and corporate tax rates, and relaxed regulatory requirements. Investors are saying that taken together, these measures will accelerate US economic growth.
Financial stocks surged on the quarter, rising 21.1% as measured by the S&P Financial Select Sector index, amid rising interest rates and expectations of a friendlier regulatory environment. Banks’ lending profits stand to benefit should the yield curve continue to normalize.
Mid and small cap stocks capped a remarkable year that saw the Wilshire 4500 index rise 6.5% on the quarter and 18.5% for the year. The strong performance comes on the heels of two consecutive years (2014-2015) in which large-cap stocks soundly outperformed mid and small caps, illustrating the benefits of broad diversification across all sectors and capitalizations of the US stock market.
Market volatility was modestly higher in the fourth quarter, with the VIX volatility index reaching a high of 23 just prior to the November elections, before falling back to more subdued levels (low teens) at year-end.