January 18, 2018

Financial Markets

  • Global equity markets continued to rally, boosted by improving economic activity and higher corporate profits. Several equity indices set new all-time highs. The emerging markets index was the top performer.
  • Bond returns were mixed as short and medium-term Treasury bond prices fell and yields rose on expectations for less accommodative monetary policy in the future, but corporate bond yields declined on strong demand.
  • Strong data on industrial production drove prices for industrial metals sharply higher. Crude oil prices rose to the highest levels since mid-2015.

Overview of the Economy

  • The economic expansion in the U.S. and globally has been solid, shown by various indicators, such as unemployment, manufacturing and services sector reports, home sales, and consumer and business sentiment at the best levels in many years. U.S. gross domestic product (GDP) growth was 3.2% in the third quarter.

Notable Events

  • The U.S. Federal Reserve Open Market Committee (Fed) raised the federal funds rate target by 0.25%. Jerome Powell was nominated as the next Fed chair. He is widely expected to continue the current policy path.
  • A tax reform bill was signed into law in December that, among various other provisions, cut the corporate tax rate to 21% from 35%, and reduced individual tax rates, including lowering the top rate to 37% from 39.6%.
  • S&P Dow Jones Indices and MSCI said that in September 2018 they will broaden the telecommunications services sector in their equity indices to include media and entertainment companies and will rename the sector as communications services. A list of companies that will be affected by the change will be released in early 2018.

For an in-depth analysis of the quarter, please download the PDF.