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A Look Back at 2016 Thus Far

The Year in Brief

Investors will likely remember 2016 as a year of two momentous votes and one monetary policy decision. This year brought the Brexit referendum in the United Kingdom and a surprise presidential election victory for Donald Trump, and it now appears probable that the Federal Reserve will raise interest rates in December. As Thanksgiving week began, the S&P 500 sat comfortably near 2,200, while the Dow Jones Industrial Average pushed toward breaking 19,000. Some analysts felt both indices would post single-digit advances in 2016, but they may yet surpass those expectations – the S&P was up 7.3% YTD when Thanksgiving week started, and the Dow had advanced 8.6% YTD. Some major overseas indices were also in line for nice 2016 gains. Away from the equity markets, 2016 has been a fine year for commodities, with oil prices rebounding, and a great year for home sales. Investors approached the holidays in a bullish mood. (1)

Domestic Economic Health

Economically speaking, 2016 resembles 2015: a poor first quarter, then improved GDP in succeeding quarters. An anemic 0.8% GDP reading for Q1 preceded 1.4% growth in Q2 and a 2.9% rate of expansion in Q3 (a two-year high). (2)

The headline jobless rate had been at 5.0% in December 2015; by May 2016, it had descended to 4.7%. Then it rose and fell again to end up at 4.9% in October. The U-6 rate, measuring underemployment as well as unemployment, jumped 0.7% to 10.5% in January, but fell to 9.2% by October. (3,4)

On Main Street, the pace of consumer spending flattened in March, jumped 1.1% in April, retreated 0.1% in August, and then advanced 0.5% in September to close out the third quarter. Consumer sentiment indexes drifted lower as the year unfolded. The University of Michigan’s household sentiment index ended 2015 at 92.6 and was one point lower by October 2016; its 2016 high point of 94.7 came in May. The reading on the Conference Board’s consumer confidence gauge has varied from 92.4 to 103.5 this year; at 98.6 in October, it was 2.3 points higher than where it was in December. (5,6,7)

The Institute for Supply Management’s twin purchasing manager indices, tracking the growth of American manufacturing and services firms, showed the sectors in good shape. ISM’s non-manufacturing PMI went from 55.8 in December 2015 to 54.8 ten months later; despite the decline, the distance above the 50 mark indicates a solid rate of expansion. The Institute’s manufacturing PMI came in at 51.9 in October, up from 48.0 last December. (8,9)

By October, annualized consumer inflation had hit 1.6%, the highest level since October 2014. Energy prices increased 3.5% in October, their largest monthly jump in more than three years (gas prices rose 7.0% last month). (10)