The end of 2017 marks the 102nd month of this historic bull market (the 3rd longest since 1900). Interestingly enough is we’re 9 years removed from the “great recession.” Still, many consider this the least-loved bull market ever. Regardless of which side of the fence you land on, I’d like to take a few moments to recap the 2017 market utilizing some key data graphs and statistics.
- Volatility – Or, should I say the lack thereof? Despite the political fireworks and Twitter campaign from Capitol Hill, 2017 goes down as one of the least volatile years in the history of the stock market. Here is a great chart illustrating this from S&P Dow Jones Indices.
- Jobs & Wages – This helps support why our markets and economy are doing so well. We’ve seen a constant decrease in unemployment and a slow increase in wage growth. Latest readings have us at 4.1% unemployment; that’s widely considered a fully employed economy. Expectations are the unemployment figure could drop under the 4% mark in 2018.
- Diversification – This year diversification came back into favor. Although large U.S. companies experienced another great year, we saw the emergence of both international developed and emerging equities. Both asset classes had a better year than their domestic counterparts. Emerging markets was the big winner, putting up over 37% return. On the other side of the coin, the Barclays Aggregate Bond Index was up 3.54%. This naturally made for a wide spectrum of returns with well-diversified portfolios falling in between.
- U.S. Sectors– When looking under the hood of the domestic stock market in 2017, we saw larger company stocks outperform smaller company stocks. Additionally, we saw growth-oriented sectors (technology) outpace the more value-oriented sectors (telecom).
- Interest Rates– The Federal Reserve raised interest rates 3 times in 2017. Ultimately, they landed at a target range of 1.25-1.50%. Most economists assume there will be 3-4 more increases in 2018, too. If economic indicators (such as unemployment, GDP growth, and inflation) show a continued healthy economy, we’d expect the number of hikes to fall on the higher end of that range. While there will be a new Federal Reserve chairman in 2018 (Jerome Powell), most don’t expect these predictions to change much. It’s also widely assumed that the Fed will continue to unravel its massive balance sheet in the years to come.
- Inflation – While inflation remained rather low throughout 2017, we did begin to see it around the 2% target set by the U.S. Federal Reserve. Moving forward, we’d expect the central bank to continue monitoring the inflation figures. No doubt, it will factor into their monetary policy decisions throughout 2018. Remember, some inflation is good in an economy as it shows economic expansion and wage growth.
So what’s next?
As I mentioned earlier, this bull market has been surprisingly unloved. Will this be the year of a pull-back? Will we have another low volatility year? Will international continue to expand at the rate we’ve seen?
I’ll have all these answers and more in 12 months. Until then, we firmly believe in aligning with a well-diversified portfolio. Keep your needs and proper risk exposure in mind in order to achieve the most successful long-term outcome.