This year begins as 2016 ended—with an equity rally driven by political optimism and improved economic growth.
The equity rally faded as investors began focusing on rising bond yields and the climbing U.S. dollar.
The post-election euphoria continued last week as investors bid equity prices to new highs.
Most data point to better growth conditions in the United States.
Third quarter earnings started off poorly, dragging down equity market sentiment.
Global monetary policy remains equity friendly, but policy is no longer sufficient to drive equity returns.
The Fed will likely raise interest rates in December, although policy should remain accommodative.
U.S. and global economic growth should improve modestly over the coming year.
Equity markets should be able to withstand rising yields and remain attractive compared to bonds.
Despite headwinds for corporate earnings and profits, we expect modest, if uneven, improvements.