At the beginning of 2017, a common view among money managers and analysts was that the financial markets would not repeat their strong returns from 2016. Many cited the uncertain global economy, political turmoil in the US, implementation of Brexit, conflicts in the Middle East, North Korea’s weapons buildup, and other factors. However, equity markets defied their predictions, with major equity indices in the US and abroad posting double-digit returns for the year. [1]
Non-US stocks outperformed US stocks for the first time since 2012, and emerging market stocks returned over 37% on the year. Interestingly, despite the high returns of US stocks, the US ranked in the bottom half of countries for the year. This meant that those investors who maintained a globally diversified portfolio were rewarded.
The chart below highlights some of the years’ prominent headlines. These headlines don’t necessarily explain market performance for the year, but they do serve as a reminder that we should view daily events from a long-term perspective and avoid making investment decisions based solely on the news.
Looking Forward
As the S&P 500 and other indices reached all-time highs during the year, a common media question has been whether markets are poised for a downturn. To answer that question, we can look at how the S&P 500 Index performed from 1926 through 2017. Interestingly, the chances of a positive return for the index were virtually the same whether the index had hit a new high the year before or not.
In other words, history tells us that a market index being at an all-time high provides absolutely no useful information about what may happen the following year. So, while it might be tempting to change your portfolio based on recent performance, our advice is to continue to stay the course with a portfolio that is well suited for your specific circumstances. Adjustments, due to strong or weak market performance should be made through regular rebalancing which will promote the old and wise adage of buying low and selling high.
If you have any questions about this or anything else, please feel free to contact our offices.
Footnotes
[1] Past performance is not a guarantee of future results. Indices are not available for direct investment. Index performance does not reflect the expenses associated with the management of an actual portfolio. Market segment (index representation) as follows: US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index [net div.]), Global Real Estate (S&P Global REIT Index [net div.]), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex-US Market (Citi WGBI ex USA 1−30 Years [Hedged to USD]). The S&P data are provided by Standard & Poor’s Index Services Group. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. MSCI data © MSCI 2017, all rights reserved. Bloomberg Barclay’s data provided by Bloomberg. Citi fixed income indices copyright 2017 by Citigroup.
