Fourth Quarter 2016 Newsletter

Dear Participant,

Markets are off to a much better start in early 2017 than in 2016. After 10 trading days, the S&P 500 is up 1.3% year to date, compared to an 8% decline during the same period in 2016. You may recall that a year ago, in early 2016, markets faced a number of significant challenges. Numerous market indicators were signaling a high probability of recession. The so-called earnings recession was at its nadir. Oil was plummeting, causing worries about the health of the banking system and the high-yield bond market. And the market and the Federal Reserve (Fed) had very different expectations for the path of monetary policy.

Today, many of these and other challenges during 2016 have been resolved. Most widely-followed indicators suggest a low probability of recession in the U.S. over the next year. Policy risk has ebbed after markets got through the Brexit vote
in June 2016 and the U.S. presidential election in November 2016 mostly unscathed. The earnings recession has ended and global corporate profits are poised for an upswing. China’s economy and markets have stabilized. Oil prices have rebounded. And markets and the Fed are much better aligned with regard to the path of monetary policy over the next few years, which has helped alleviate many of the global imbalances that impacted the market in early 2016.

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