2017 will go down as a year to remember for investors. Three dynamics in particular stand out:
Size of Gains — Stock markets around the world enjoyed outsized gains, led by overseas and emerging markets. Within the U.S., technology stocks led the way, rising 38%, thanks in part to the familiar trio of Facebook, Apple and Alphabet (Google). Many countries enjoyed gains of 40% or more, particularly in Latin America, Eastern Europe, and Southeast Asia. Bond markets also enjoyed solid returns, especially in riskier areas like high yield corporate and emerging market bonds.
Scope of Gains — Virtually every major asset class rose in value, leading to solid returns for diversified portfolios. Energy stocks and MLPs were among the only losing sectors for the year, partially due to low oil and gas prices. Even that can be viewed in a positive light, however, in that low energy prices are good for the economy.
Decline in Volatility — As if strong, broad gains weren’t enough to cheer, volatility has been extraordinarily low. The VIX index that measures market volatility plunged 35% in 2017 and presently sits near all-time lows. The S&P 500 fell no more than 3% over the course of the year, matching the smallest intra-year decline since World War II. The S&P is set to rise for its 14th straight calendar month, the longest streak in the history of the index.
Despite the banner year, risks are beginning to rise for the stock market. Above-average valuations, the withdrawal of central bank stimulus, and budding inflationary pressures all suggest volatility could rise in 2018. Accordingly, we recommend that investors remain disciplined and diversified, and re-balance portfolios where prudent.
DISCLOSURE:This report is based on data obtained from sources we believe to be reliable. Hefren-Tillotson does not, nor any other party, guarantee the accuracy or completeness of this report or make any warranties regarding results obtained from its usage. All opinions and estimates included in this report constitute the firms judgment as of the date of this report and are subject to change without notice. This report is for informational purposes only and is not intended as an offer or solicitation to buy or sell the securities herein mentioned.