December was a strong month for global risk assets. Developed and emerging market equities were mostly higher, the USD weakened, the US yield curve continued to flatten, the oil complex moved higher, and credit spreads tightened. The Federal Reserve raised the federal funds rate by a quarter point to a range of 1.25%-1.5%, the third increase in 2017 and the fifth in the past two years. Congress passed the most significant tax overhaul of the US tax code in 30 years. The US job report showed that 228,000 non-farm jobs were added in November, the unemployment rate held at 4.1%, and the labor force participation rate held at 62.7%.
Notable corporate transactions announced in December included the $990 million purchase of Big Fish Games from Churchill Downs by Aristocrat Leisure, the $69 billion acquisition of Aetna by CVS, the $3 billion purchase of General Cable by Prysmian Group, the $1.4 billion acquisition of Talcott Resolution by a group led by Cornell Capital, Intuit’s $340 million purchase of TSheets, Nestle’s $2.3 billion acquisition of Atrium Innovations, UnitedHealth’s $4.9 billion purchase of DaVita’s primary care unit, the $567 million acquisition of Cell Design Labs by Gilead and Kite, Apple’s purchase of Shazam for approximately $400 million, the $15.7 billion purchase of Westfield by Uniball-Rodamco, the acquisition of 3M’s communication markets division by Corning for $900 million, the $14 billion merger of BASF’s and LetterOne’s oil & gas businesses, Target’s $550 million purchase of Shipt, the $52.4 billion purchase of select assets of 21st Century Fox by Disney, Iron Mountain’s $1.3 billion acquisition of IO Data Centers, the $2.2 billion purchase of OnePath Life by Zurich Insurance, the $8.1 billion purchase of Unilver’s spreads business by KKR, the $6.1 billion acquisition of Buwog by Vononia, the $1.6 billion purchase of Amplify by Hershey, the $4.9 billion acquisition of Synder’s Lance by Cambell Soup, the $1.2 billion purchase of Aconex by Oracle, the $1 billion acquisition of Cayan by TSYS, the $305 million purchase of Qdoba by Apollo Global, and the $1.2 billion acquisition of Sucampo Pharmaceuticals by Mallinckrodt.
Developed market equities were mostly higher in December (see page 8), with the largest gains in the UK (+5%), Hong Kong (+2.8%), and Australia (+1.7%); the worst performing were Italy (-2.2%), Spain (-1.8%), and France (-0.9%). US small caps underperformed large caps, with the Russell 2000 down 0.4% and the Russell 1000 up 1.1% (see page 3). Telecom (+5.8%), Energy (+4.9%), and Consumer Discretionary (+2.4%) were the best performing sectors in December, while Utilities (-6.1%), Health Care (-0.6%), and Real Estate (-0.5%) were the worst performing (see page 2). Large cap value (+1.5%) outperformed large cap growth (+0.8%) in December (see page 3). Emerging market equities were higher in December (see page 9), with the biggest gains in Indonesia (+8.9%), Argentina (+6.7%), and Brazil (+6.1%); Taiwan (+0.4%), Korea (+1.1%), and Russia (+1.6%) were the worst performing.
In currencies, the USD Index was down -1% in December (see page 10). The strongest currencies against the USD were the New Zealand Dollar (+3.9%), Australian Dollar (+3.2%), and Canadian Dollar (+2.6%). Emerging market currencies were mostly stronger against the USD, with the biggest gains in the South African Rand (+10.4%), Turkish Lira (+3%), and Korean Won (+2%) and losses in the Mexican Peso (-5.3%), Brazilian Real (-1.2%), and Indonesian Rupiah (-0.4%).
The US Treasury yield curve flattened in December (see page 12). 10 year rates closed the month at 2.41%, unchanged from November month end. Investment grade and high yield spreads tightened in December (see page 13).
In commodities, the GSCI index was up 4.4% in December (see page 11), with gains in Industrial Metals (+8%), Energy (+5.9%), and Precious Metals (+2.8%), and losses in Livestock (-1.6%) and Agriculture (-0.8%). Within individual commodities, Aluminum (+10.9%), Heating Oil (+9.1%), and Cotton (+8.1%) saw the biggest gains, while Cocoa (-7.6%), Feeder Cattle (-6.2%), and Soybeans (-3.5%) saw the biggest losses. Gold was up 2.7% for the month.
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