U.S. equity markets climbed higher consistently throughout February as fourth-quarter earnings results were solid and nominal economic growth continued to strengthen. Despite some theatrics from Washington, optimism remains for President Trump’s pro-growth agenda. The S&P 500 Index reached a new all-time closing high of 2,369.75 on February 27. Large-cap stocks as represented by the S&P 500 Index gained 4.0%*, outperforming small-cap stocks measured by the Russell 2000 Index which rose 1.9%.*
U.S. equity markets continued to advance in January as fourth-quarter earnings results were solid and economic data pointed towards continued growth, which offset declining optimism that President Trump can fully implement his pro-growth agenda. The S&P 500 Index reached a new all-time closing high of 2,298.37* on January 25. U.S. equity markets drifted lower in the month’s final days as President Trump signed executive orders on trade policy and immigration. Investors fear that the president’s stance on trade and immigration are counterproductive to the pro-growth policies he looks to implement. Large-cap stocks as represented by the S&P 500 Index gained 1.9%*, outperforming small-cap stocks measured by the Russell 2000 Index, which rose 0.4%*.
Immediately following the presidential election, U.S. index futures plunged and at one point, futures for the Dow Jones Industrial Average dropped nearly 900 points*. Surprisingly, as investors absorbed the implications of this political sea change, key indexes rebounded and ended higher on November 9. The Dow went on to close at a record high level on November 10 and finished up for the quarter. Financials led the advance, first benefiting from investors’ hopes that the new Republican administration would roll back industry regulations and second, from the Federal Reserve’s (Fed) decision to raise short-term interest rates for the first time in 2016. Citing signs that the economy has improved, the Fed also stated it intends to raise rates three times in 2017. Similarly, optimism that policy makers will carry through on promises of considerable infrastructure spending helped share prices in the industrials and materials sectors and the pledge to expand domestic oil and gas production boosted energy companies’ shares.
The S&P 500® Index gained 3.82%* for the fourth quarter (in Canadian dollar terms, the return for the quarter was 6.28%), resulting in a total return of 11.96%* for the year. The quarter began with a 1.82%* loss for the month of October, followed by returns of 3.70%* and 1.98%* for November and December, respectively.
Following the US presidential election, markets adopted a view that US growth and inflation are headed higher. In December, the Federal Reserve (the Fed) raised rates and struck an unexpectedly hawkish tone, helping push Treasury yields to their highest levels since 2014. Upward pressure on yields was a global trend as investors sought equities and other higher-risk assets in response to improved economic prospects. Notably, new monetary policy tactics from the Bank of Japan kept Japanese government bond yields relatively stable and helped them outperform developed market peers.
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