January 2017

Summary and Conclusion:

Asset prices rose during December. The S&P500 index of U.S. equity market prices increased by 2.6 percent. This increase continued the trend of steady growth in asset prices at relatively low volume and volatility that has characterized equity markets over the past several years. The VIX fell back to its lows October and November – levels well below those preceding the election and during the beginning of last year. The yield on 10 year U.S. government bonds edged up to 2.4 percent, returning to the levels at the beginning of last year. Following the passage of the tax bill that included incentives for investment spending, bond traders are pricing in a gradual increase in productivity growth for the economy. The Federal Reserve increased the Federal Funds rate by 25 basis points to a range of 1.25 to 1.5 percent at its December meeting. (The latest release on core and headline inflation based on the PCE price index registered 1.8% (headline) in November relative to November of 2016 and 1.5% on core. The Fed’s target is 2.0 percent.)