Quarterly Market Review - Amazon S3 Quarterly Market Review Fourth Quarter 2017 This report features

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Transcript of Quarterly Market Review - Amazon S3 Quarterly Market Review Fourth Quarter 2017 This report features

  • Quarterly Market Review Fourth Quarter 2017

  • MEET THE NEW YEAR, SAME AS THE OLD YEAR?

    Dear Clients,

    When thinking about what to expect in 2018, I couldn't help but think of a line from The Who's 1971 hit, "Won't Get Fooled Again." The line goes " ... meet the new boss, same as the old boss ... " So I took some liberty with the lyrics for the title of this commentary.

    For that is the big question. Will equity markets continue an incredible bull run that first began way back in March 2009, but seemed to gather steam last year.

    I believe it is fair to say that the magnitude of capital markets returns in 2017 came as a surprise to most observers.

    Who would have believed that the volatility of both stock and bond markets would be so quiescent in the wake of the inauguration of celebrity politician Donald J. Trump as our 45th President?

    Predictions of market turmoil due to any number of concerns, such as intense political infighting in Washington D.C., numerous geopolitical risks, shifting central bank policies, the threat of rising inflation, and stretched stock/bond valuations, to name just a few, simply did not come to pass.

    In fact, U.S. stocks (S&P soo Index) posted twelve consecutive months of gains (including dividends) in 2017. Adding in the two positive months of November and December 2016, this period represents the longest monthly winning streak in history.

    Looking at the performance of the S&P soo on an annual basis, investors have enjoyed nine consecutive years of positive total returns. Since 2003, there has only been one year of negative returns-that awful37% drop in 2008.

    What explains the heady stock returns of 2017? Before simply dismissing this market as a 'bubble," consider that the U.S. economy has experienced an impressive run of stable interest rates, low inflation, and rising corporate profits. Other recent catalysts include a more favorable environment for business investment driven by regulatory rollbacks and the promise of corporate tax reform.

    The benefit derived from less aggressive administrative bureaucrats is probably underappreciated. Freeing up labor and capital resources to more productive uses than mere paper shuffling redounds to our economic well- being.

    The changes to the corporate tax rate are certainly welcome and should, all things equal, encourage greater levels of business investment. For it is only through productive investment can we expect further job creation and higher wages.

    Fixed-income markets provided solid, if unspectacular, returns last year. Despite three policy rate increases (federal funds rate) by the Federal Reserve, bonds (as measured by the Bloomberg Barclays Aggregate Index) managed to generate a total return of 3.54%. Perhaps even more impressive is the 8.53% return of the Bloomberg Barclays Long U.S. Government Bond Index during 2017. Not bad when you consider many observers assumed Fed rate hiking would be a major headwind for long-duration fixed-income assets.

    620 Newport Center Drive, Suite soo, Newport Beach, CA • 949·999-Bsoo • www.unitedcp.com

    ©2018 United Capital Financial Advisers, LLC. All Rights Reserved.

  • International markets also delivered impressive performance, aided by a weaker U.S. dollar as well as improving fundamentals in many regions. The MSCI EAFE Index, which measures returns of developed countries, generated a return of 25% while the MSCI Emerging Markets Index returned an impressive 37.3%.

    Quite reasonably, investors continue to ask how long this ride can go on. Surely stocks must be due for a comeuppance in 2018?

    Perhaps this will be the year. If only such things could be predicted . But U.S. stocks have started the new year right where they left off the old .

    I believe that as long as the economy continues on its present trajectory, it is reasonable to expect another decent year for stocks.

    The Fed will have new leadership as Chairwoman Janet Yellen steps down in early February. We do not expect much in the way of changes in policy, either in terms of philosophy or trajectory, from incoming Chairman Jerome Powell.

    I do suggest investors prepare for more humble returns in both equity and fixed -income markets over say, the next 5-10 years, than what investors have garnered since the market troughed in early 2009.

    Looking at U.S. stocks, considering current market valuations coupled with more modest corporate profit growth and interest rate headwinds, low- to mid-single digit returns seem more reasonable to expect in the coming years.

    With market interest rates at current levels, the math simply isn't there for bonds to have the level of returns enjoyed since interest rates peaked in the early 1980s. Relatively tight credit spreads also represents a headwind for corporate debt markets.

    In addition to having realistic investment return expectations, be prepared for the possibility of volatility returning to markets. History suggests stocks will experience pullback(s), perhaps quite severe, this year. Proper diversification of your portfolio remains timeless advice. This includes an allocation to non-U.S. markets and perhaps alternatives. Bonds, despite meager rates, should continue to serve as ballast in any well - diversified investment portfolio. For the high tax bracket investor, municipal bonds continue to offer relatively attractive opportunities.

    After such a long stretch of low volatility and double-digit annual returns, investors tend to overestimate the ir true willingness and ability to endure gut-wrenching declines. If this possibly describes you, please take the opportunity now to schedule some time with your United Capital wealth advisor for a consultation.

    Wishing you a healthy and prosperous 2018!

    Respectfully,

    Bob Landry, CFA, CFP Chief Investment Strategist

    620 Newport Center Drive, Suite soo, Newport Beach, CA • 949·999.8500 • www.unitedcp.com

    ©2018 United Capital Financial Advisers, LLC. All Right s Reserved.

  • Quarterly Market Review Fourth Quarter 2017

    This report features world capital market performance and a timeline of events for the last quarter. It begins with a global overview, then features the returns of stock and bond asset classes in the US and international markets.

    The report also illustrates the impact of globally diversified portfolios and features a quarterly topic.

    Overview:

    Market Summary

    World Stock Market Performance

    World Asset Classes

    US Stocks

    International Developed Stocks

    Emerging Markets Stocks

    Select Country Performance

    Select Currency Performance vs. US Dollar

    Real Estate Investment Trusts (REITs)

    Commodities

    Fixed I nco me

    Impact of Diversification

    2017 Annual Market Review

  • Market Summary Index Returns

    Since Jan. 2001

    Avg. Quarterly Return

    Best Quarter

    Worst Quarter

    International US Stock Developed Market Stocks

    6.34% 4.23%

    2.0% 1.6%

    16.8% 25.9% Q2 2009 Q2 2009

    -22.8% -21.2% Q42008 Q42008

    Emerging Markets Stocks

    7.44%

    3.2%

    34.7% Q2 2009

    -27.6% Q42008

    A UNITED CAPITAL • FINANCIAL LIFE MANAGEMENT~

    Global Real Estate

    2.97%

    2.7%

    32.3% Q3 2009

    -36.1% Q42008

    I

    US Bond Market

    Global Bond Market ex US

    BONDS

    0.39% 1.10%

    1.2% 1.1%

    4.6% 5.5% Q3 2001 Q4 2008

    -3.0% -3.2% Q42016 Q2 2015

    Past perfonnance is not a guarantee of future results. Indices are not available for direct investment. Index perfonnance does not reflect the expenses associated with the management of an actual portfolio. Market segment {index representation) as follows: US Stock Market (Russell3000 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 Bardays 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 & Poo(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 2018, all rights reserved. Bloomberg Barclays data provided by Bloomberg. Citi fixed income indices © 2018 by Citigroup. 2

  • World Stock Market Performance MSCI All Country World Index with selected headlines from Q4 2017

    260 "US Producer Prices Rise Strongly, Point to Firming Inflation" "US Consumer Confidence

    in October Hit Its Highest Level since 2004"

    "Oil Hits Two-Year Highs as US Stockpiles Drop"

    "US Dollar Ends With Biggest Annual

    Decline Since 2007" 250

    240

    230

    220

    210

    "US Factory Activi ty Hits 13-Year High"

    "Eurozone Consumer Confidence at 16-Year High"

    "IMF Raises Global

    Economic Outlook for This Year and 2018"

    "New-Home Sales Growth Surges to 25-Year High"

    Oct Nov

    "UK Inflation Rate Holds at Five-Year High"

    "Japan's Economy Boosted by Surge in Capital Spending"

    "Home Sales Remained

    Sluggish in Octobers"

    Potential Output for First Time in Decade"

    "Trump Signs Swee