- Donald J. Trump was elected the 45th President of the United States and the Republicans gained a full majority in Congress. Since the election, stock markets in the U.S. have rallied as investors have responded to President–elect Trump’s campaign promises of economic stimulus, tax reform and regulatory relief. Interest rates have also risen since the election as the bond market reflects an environment of faster growth and higher inflation. While markets are discounting certain economic scenarios, it is much too early to forecast the policies of the new administration and their reception in Congress.
- The Conference Board Leading Economic Index® (LEI) for the U.S. increased 0.1% in October to 124.5 (2010 = 100), following 0.2% increase in September and a 0.2% decline in August. The LEI is a reliable indication of economic activity for the next six months.
- The U.S. economy expanded more quickly in the third quarter than previously reported. Real GDP grew at a 3.2% annualized rate, up from the preliminary estimate of 2.9%, as personal consumption expenditures growth was stronger than the initial estimate. This follows real GDP growth of 1.4% in the second quarter.
- The Organization of Petroleum Exporting Countries (OPEC) agreed to cut oil production by 1.2 million barrels a day from the current 33.6 million barrels. This reduction would erase approximately 1% of global output. OPEC expects producers from outside the group to reduce production by some 600,000 barrels a day. Energy stocks rallied on the late November news.
- The LEI, GDP, and employment data paint a picture of solid economic growth, and investors are focused on how the Fed will react when it meets on December 13-14. A case can be made that employment is strong enough for the Fed to raise rates. Our view is that the Fed will raise the Federal Funds rate by 25 basis points at the December meeting, and continue to raise rates slowly in 2017.
- Corporate profits for the third quarter rebounded from a year earlier and set the stage for further expansion in the fourth quarter. Earnings gains were consistent among most sectors of the S&P 500 with healthcare and financials showing the most improvement in revenue. S&P 500 companies’ profits rose 4.2% from last year’s third quarter, the largest percentage gains in profit since 2014, and also ahead of expectations.
Sources: Bloomberg LLC, FACTSET, U.S. Commerce Department, Bloomberg BusinessWeek, IHS iSuppli
* This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.
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