In this quarter’s Economic Perspectives, we take closer look at fiscal spending and its impact on economic growth. While president-elect Trump’s pro-growth initiatives are expected to be supportive to growth later this year, only time will reveal the specifics of future fiscal policy and whether it will live up to current expectations.
- An improving corporate earnings picture and expectations for a more robust economic expansion fueled a rally in domestic equities in December; 2016 calendar year returns for the major U.S. stock indices were up double-digits, with small-caps leading the pack.
- December was also a positive month for international stocks despite headwinds from a stronger dollar; developed market equities added 3.4%, while emerging markets managed a 0.2% return.
- Returns for most fixed income benchmarks were largely flat in December, following November’s selloff, with the exception of the more risk-correlated high-yield bonds, which added 1.8%.
- In a widely anticipated move, the Fed hiked its benchmark interest rate by 25 basis points following the FOMC meeting in December; it also released a new “dot plot” suggesting the possibility of three more hikes in 2017.