Global equities extended their gains into January, with modest appreciation in the U.S. overshadowed by more substantial gains abroad. Gains were broad-based in the U.S., with energy the only material detractor, while small cap returns were tempered somewhat after a very strong post-election period. International shares benefitted from a mild weakening of the dollar, which had appreciated aggressively into year-end, as well as a pickup in growth expectations in 2017. Interest rates were largely unchanged during the month as few anticipate a hike at the FOMC’s February meeting. Accordingly, bonds delivered positive results, with corporate credit outpacing Treasuries.

 
 
The post-election rally carried on through December, benefitting most equities and capping off a strong year. Bonds also benefitted, ending a multi-month slide, despite the Federal Reserve deciding to increase interest rates in December. We thought it would be interesting to share a few facts relating to the S&P 500 Index’s strong performance in ‘16: a) its 12.0% gain was comprised of 9.5% from appreciation and 3.5% from dividends, b) if you exclude the 3 best days of the year then the gain falls to 4.4%, c) if you exclude the 3 worst days of the year then the gain rises to 22.1%, d) the average annual return over the last 50 years is 10.2%, e) annual returns have been positive 13 of last 14 years, including 8 in a row (9 is the record), and 40 of the last 50 years (80%), and f) over the last 50 years, 53% of trading days have been positive and 47% negative (2016 was 52/48).

 
 
The losses of October extended to the first week of November, with investors continuing to unload equities ahead of the U.S. presidential election. After the surprise of a Trump victory settled in, markets sharply changed course, with equities rallying through the month on the prospect of a pro-growth/business administration. Domestic stocks rose sharply, especially small caps and cyclical sectors (energy, industrials), while international equities suffered due to the overhang of an Italian banking crisis as well as the specter of trade wars with the U.S. Bonds experienced losses as growth/inflation forecasts picked up in conjunction with a Federal Reserve that appears more likely to raise interest rates in its December meeting.

 
 
Global securities markets took a step back in October, as equity markets weighed the potential investment implications of a tight (and contentious) presidential race in the U.S. Bond markets, too, sold-off given continued rhetoric from the Federal Reserve all-but-stating that economic data is supportive of a possible interest rate hike in December. Financials were the lone bright spot during the month given that banks benefit directly from higher interest rates; healthcare stocks lost nearly 7% as policymakers mulled regulation to address recent drug price inflation. A steepening yield curve provided a headwind for bonds, compelling investors to sell corporate bond funds and other “bond surrogates” such as MLPs and REITs.

 
 
The Federal Reserve gave its strongest indication yet that it might raise rates in 2016, while OPEC reversed its two-year stance and announced that it would consider cutting crude oil production. The result was a somewhat rocky September, though global securities markets largely generated positive results. In the U.S., small caps continued to outperform, as did energy and tech sectors, while dividend oriented stocks and most bonds lagged due to investor concerns over rising rates. International equities continued to experience a strong post-Brexit rally, particularly in emerging markets which has benefitted from a recovery in corporate earnings after nearly five years of declines.

 
 
The market narrative in June was largely driven by the referendum in the UK on whether to stay or leave the European Union, the so called “Brexit” vote, with the leave vote shocking markets and causing global equity markets to sell-off over the subsequent days. Markets were quick to recover and rallied into month-end, with emerging markets leading the charge based on the strength of the global commodity recovery. U.S. equities ended flat to positive, led by utilities and energy. International developed equities suffered mild losses given uncertainty surrounding the UK’s exit of the EU and its impact on Eurozone trade. Bonds posted strong returns across the board, benefitting from a flight to safety trade.

 
 
Domestic equities continued to stabilize during May following a volatile Q1. Results were led by technology stocks, which have lagged recently due to a rotation away from growth in favor of more defensive stocks. International developed and emerging market equities were negative, as a strengthening dollar coupled with the “Brexit” vote in June weighed on stock prices abroad.

 
 
April was another positive month for global equities, with shares benefitting from the strong recovery in crude oil prices and the Federal Reserve’s decision to again delay raising interest rates. Further, positive data out of China showed increases in industrial output, fixed asset investment, and retail sales. International developed equities benefitted the most from this backdrop, as did energy-related equities. A notable detractor during the month was the tech-laden Nasdaq, which has lost -4.6% in '16, as investors have repriced the sector based on earnings potential, not top-line revenue growth. Investment grade bonds were largely unchanged while high yield bonds delivered another strong month on further spread compression.

 
 
The rally in global markets continued throughout March as the Fed returned to its dovish ways and the ECB moved to expand its stimulus package. A recovery in domestic credit markets, spurred by another rate cut in the Eurozone, fuelled the rally, with global equities returning 6-8% and high yield bonds 4%. While gains were broad based across market cap and style (value and growth), recent laggards – emerging markets, energy, commodities, small caps – led the pack. Treasury yields remained volatile during the month but ended up largely flat during the period, demonstrating the hyper sensitivity of bond investors to Fed actions given the expectation of multiple hikes this year.

 
 
Equities extended their losses into February, though rebounded sharply mid-month as investors responded to crude oil prices rallying and economic releases in the U.S. showing signs of continued economic expansion. This was unfortunately not enough to erase earlier losses. Large cap stocks returned -0.1% during the month and small caps broke even. International shares fared worse, with developed economy stocks returning -1.8% over concerns of the health of European banks and whether Great Britain would exit the EU. Investment grade bonds generated positive results as investors sought relative stability, despite interest rates continuing to decline.