Review and Outlook: Q4 2017
There was a change in view for business, the economy and corporate earnings during the fourth quarter
Several areas contributed to this:
- The global economy seemed to continue to pickup pace. The U.S. had two consecutive quarters of +3% real GDP growth, and economies from Europe to China are seeing positive economic indicators.
- Business sentiment remained very high and that confidence was affirmed by a robust corporate tax bill that addressed repatriation, accelerated capital spending write-downs for tax purposes and a noticeably lower corporate tax rate.
- Earnings estimates for large U.S. companies, via the S&P 500, are rising for 2018, and continue to do so. At the end of September, the sell-side estimate for 2018 earnings per share growth was an increase of 12.17% from 2017. That number is now up to 14.84% and likely to go higher as companies announce how the tax cuts will affect them with quarterly earnings releases in January.
The stock market took note of these factors in the fourth quarter, with the Dow Jones Industrial Average rising an impressive 10.33%. The returns in the fourth quarter cap a very good year for stock investors around the world.
Interestingly, the bond market stayed fairly calm during the quarter, with the 10-year treasury yield rising slightly from 2.33% on 10/1/17 to 2.41% by year’s end. This helped further propel stocks.
We start 2018 with an optimistic tone for business and markets. How central banks will react to this and how companies will deliver on the optimism is an area of focus for all market participants in the first quarter of the New Year. Stocks are due for a pullback, but the fundamentals are improving. A solid state of affairs for diversified investors.
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