What moved the markets in December: Tax reform dominated the news in the United States as Congress passed the GOP’s tax reform bill which President Trump signed into law just ahead of the holidays.

 

Market highlights:

Equity markets were positive in North America. The TSX climbed 1.2%, with gains of 24% in the Healthcare sector (i.e. weed stocks)

 

In the U.S., the S&P 500 closed up 1.1%, with all sectors ending the month in positive territory, with the exception of the Healthcare and Utilities sectors

 

Unemployment fell to 5.9% in Canada which is the lowest rate since February 2008

 

In the United States, tax reform took the center stage. President Donald Trump secured his first legislative win after signing the tax reform bill into law in late December. The bill reduces corporate tax rate to 20% as well as the top federal income tax rate for individuals (now 38.5%)

 

The FOMC increased the benchmark Fed Funds rate by 25 basis points on December 13, bringing the upper bound to 1.50%

 

Elsewhere, growth in China and Japan was revised upwards while the Bank of England and the European Central Bank kept their benchmark rates

unchanged

 

What to expect going forward: It’s all good. The reasons for the stock market strength tend to become more obvious after the market has had a rally, and we are now seeing more frequent indications of economic and earnings growth. The stock market tends to anticipate the future and I would interpret the recent strength in the indexes as a prediction of even better economic readings ahead. The bothersome part is the rate that the market has been advancing. I prefer an advance where the market grinds its way higher in a controlled fashion, rather than moving up in a trend that may be “too much-too fast.” So enjoy the uptrend, but also keep in mind that markets tend to move from one extreme to the other and balance out over time.