Coming into the week the S&P 500 was at +12.84% YTD returns, and the MSCI EAFE was at +0.50% YTD returns. It is very unlikely that there will be a change in leadership between US stocks and foreign developed stocks, meaning that for the 4th consecutive year US stocks will lead their foreign developed counterparts.

“The Market” as measured by the Vanguard Total World Stock ETF (VT) is at roughly +6.5% year-to-date.

The second estimate of US 3Q16 GDP showed an uptick in US growth with an expansion from 1.4% last quarter to 3.2% this quarter. Expansion of the US and world economy my not be racing, but it does continue a slow and steady tortoise walk.

3Q16 earnings among S&P 500 companies grew 13.8% year-over-year which was the first positive growth in six quarters. This disconnect between growth in earnings highlights a couple of factors about how markets work. Most would assume that markets would have declined over these past six quarters if earnings were declining. Markets however are a function of supply and demand, and the many variables that move supply and demand are vast.

Inflation appears to be rising, as headline CPI grew by 1.7% year-over-year and the core measure grew 2.1% year-over-year in November.

The Fed raised expectations for inflation and the number of rate hikes for next year. The FOMC expects it will raise rates three times in 2017. Of course we know that the Fed has been very off on most of their predictions and timelines over the last several years. If rates do in fact finally rise, mid and long duration treasuries should be a major underweight in fixed income portions of portfolios.

— Wyatt