Market View (January 2018) – A Year in Review

by Daniel Yu, CFA®, AIF®, REDW Stanley Financial Advisors

Like most years, 2017 had its familiar themes and its surprises.  On the familiar side we continued to see the price of oil be relatively stable as incremental increases in demand were easily met with production increases. Economic growth both in the US and overseas continued to improve. The Federal Reserve began its balance sheet reduction program which was highly anticipated. On the surprise side, the Republican controlled Congress was unable to repeal the Affordable Care Act (commonly known as Obamacare), and it was very late in the year when the same Congress delivered on a new tax bill. Crypto-currencies came to the forefront during 2017 as Bitcoin and others rocketed in value amid an ongoing debate on their place in the economic landscape.  Perhaps the most surprising observation of 2017 was how the S&P 500 had a full 12 months of positive monthly gains, an event which is very rare.

Against the backdrop of improving economic conditions and corporate earnings, most equity markets had positive returns. Below is table of returns.

Asset Class Index 2017 Return
Emerging Markets MSCI Emerging Markets 37.28%
International Developed MSCI EAFE 25.03%
US Large Cap S&P 500 21.83%
US Small Cap Russell 2000 14.65%

 

Source: Morningstar Direct

In terms of fixed income, interest rates were volatile, but essentially finished the year flat as the 10 Year US Treasury began the year at 2.45% and finished the year at 2.40%. Concerns about rising rates and inflation weighed more during the first part of 2017, but most fixed income classes had positive returns during 2017. Changes within the Real Estate Investment Trust (REIT) industry and concerns over interest rates added volatility to the sector, but again 2017 proved to be a year of investment gains. Below is a table of returns.

Asset Class Index 2017 Return
Real Estate Investment Trusts FTSE NAREIT 8.67%
Intermediate Term Bonds Barclays Aggregate 2.27%
Short Term Bonds Barclays 1-5 Year Govt/Credit 1.27%

 

Source: Morningstar Direct

For 2018, we expect US GDP to continue at about 3%, which should be positive for US Equities. In terms of relative valuation, we see International Equities and Emerging Market Equities as relatively undervalued compared to US Equities. We also expect the reduction of the corporate tax rate to be generally beneficial to economic growth. However, given the relative lack of volatility, we could see an increase in volatility during the year; and continue to advocate approaching your investing in a diversified, asset allocation manner.


Copyright 2018 REDW Stanley Financial Advisors, LLC. All Rights Reserved. This publication is intended for general informational purposes only and should not be construed as investment, financial, tax, or legal advice.