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A record-breaking year for US equities

December 2017

US equity indices reached new highs during December as President Donald Trump’s controversial tax reforms were approved by US lawmakers and signed into law. Meanwhile, as expected, the Federal Reserve raised its key interest rate by 0.25% at the December meeting of the FOMC. The third rate increase of 2017 took the federal funds rate to a range of 1.25% to 1.5%.

  • The S&P 500 Index achieved its longest consecutive monthly gain since 1989 
  • Inflation remains a problem for central bank policymakers
  • The Fed is expected to raise interest rates three times during 2018

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US equity indices reached new highs during December as President Donald Trump’s controversial tax reforms were approved by US lawmakers and signed into law. The sweeping reforms will cut corporate tax from 35% to 21%, and will also reduce inheritance tax and tax on profits generated overseas, and will increase child tax credit. Although most taxpayers will enjoy lower taxes in the short term, these cuts will lapse in 2025.

“The Dow posted its best annual performance since 2013”

The Dow Jones Industrial Average Index posted a monthly increase of 1.8% during December and an annual rise of 25.1%. The Dow posted its best annual performance since 2013, when it rose by 26.5%. The index also achieved 71 new highs during 2017 – more than any other year in history, according to S&P Dow Jones Indices, followed by 1995 with 69 new highs and 1925 with 65 new highs. The best-performing sector during the year was industrials, followed by consumer discretionary and technology. The only sector to make a negative contribution in 2017 was telecoms. 

The S&P 500 Index rose by 1% in December and by 19.4% over 2017. The S&P 500 Index achieved its longest consecutive monthly gain since 1989 during December, according to S&P Dow Jones Indices, notching up 14 straight monthly increases.

The technology-rich Nasdaq Index rose by 0.4% in December and by 28.2% over the year, breaching 7,000 points for the first time.

As expected, the Federal Reserve (Fed)  raised its key interest rate by 0.25% at the December meeting of the Federal Open Market Committee (FOMC). The third increase implemented by FOMC policymakers during 2017 took the federal funds rate to a range of 1.25% to 1.5%. Looking ahead, the Fed expects to implement another three increases in interest rates during 2018, although tightening is expected to remain “gradual”. 

A lacklustre inflationary backdrop has created a conundrum for Fed policymakers; consumer price inflation rose at an annualised headline rate of 2.2% during November, compared with October’s rate of 2%, driven up by higher fuel prices. However, the annualised rate of core inflation – which strips out the impact of energy and food – slowed from 1.8% to 1.7%. The rate of unemployment in the US remained unchanged in November at 4.1% and the US economy added a better-than-expected 228,000 jobs during the month. Average earnings rose at an annualised rate of 2.5%.


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