Q4 2016 Capital Markets Review

Last Updated: January 27, 2017

The 4th quarter of 2016 was another remarkable quarter. For the second time in 2016, the market was upended by an unexpected election result. In the biggest surprise since the Brexit vote, Donald Trump was elected President of the United States. The market reaction was as strong as it was unexpected. Large U.S. companies (S&P 500 index) rose 3.82% for the quarter, while small companies (Russell 2000 index) appreciated 8.83%. The bond market was equally shaken with the BBgBarc US Aggregate Bond index down -2.98% and conversely the yield on the 10-year treasury increased from 1.61% to 2.45% during the quarter. Outside the U.S. saw a different reaction with foreign developed markets (MSCI EAFE index) down -0.71% and emerging markets (MSCI EM index) down -4.16% for the quarter.

Meanwhile, economic news remained mostly positive. The third estimate to Q3 GDP came in at 3.5%; a substantial increase from the 1.4% during Q2. Inflation remained in check rising 1.7% for the 12 months through November. Gas prices have remained muted, while home prices have risen. Monetary policy also came back into focus with the Federal Reserve raising the Fed Funds Rate in December for the first time since December 2015 and for only the second time since 2006. Believing that the economy is on sound footing and finally at full-employment levels, the Federal Reserve committee is now projecting three additional rate increases in 2017.

The events of the 4th quarter serve to remind investors that an unexpected and dramatic swing up or down can happen at any time. It is important that portfolios are positioned appropriately for the risk tolerance and time horizon of the investor. If the recent volatility has caused you to question your current asset allocation, our Investment Services team can help. To learn more, contact a Pension Consultants Investment Consultant at 800-234-9584 or email

GDP: The Bureau of Economic Analysis –
Inflation: The Bureau of Labor Statistics –
Index Returns as of 12/31/16,
TNX Historical Prices Interest Rate 10 Year T Note –
Disclosure: Past performance is not indicative of future results.

PCI’s archived blog entries are dated, the rules and statutes referenced may have changed. The analysis or guidance within these blog entries may have become stale, dated, or no longer accurate. PCI will not update or change these entries to reflect the latest analysis or development.


Pension Consultants, Inc.



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