Flash Report December 2016

Investors continued to price in expectations of stronger growth and rising inflation after the US presidential election in November. US growth data showed its largest increase in two years while consumer confidence soared to a fifteen-year high, raising hopes of self-reinforcing improvement in business and labor market conditions. Critics point to granular economic data suggesting lower growth and note that “animal spirits” have seldom led to sustained increases in real economic output. Current valuations are far from cheap and excessive optimism generally leaves equity markets vulnerable to sell-offs.

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