January 5, 2018
The lead story for the year 2017 has to be the performance of both U.S. and international stocks. U.S. stocks posted exceptional gains for the year, and for the first time since 2012, international shares did even better. The MSCI ACWI ex-USA Index, which tracks non-U.S. companies across developed and emerging markets, ended 2017 with a gain of 24%, compared with a 19% advance for the S&P 5001. Markets consistently climbed higher despite challenges arising from volatile politics in Western democracies, and increasing tensions with Russia and North Korea.
Pivotal elections in the U.S. and Europe served to reshape the political landscape. The election of President Donald Trump in the U.S. fueled investors’ hopes for business friendly government policies, regulatory rollbacks, potentially better economic growth, and inflations in the years ahead.
For the bond market, the calm in 2017 was remarkable. The 10-year U.S. Treasury yield ranged between 2.06% and 2.63%, and ended the year close to where it started2. As we have told many of our clients in recent months, comparing the strong returns on stocks in 2017 versus the yield on the 10-year U.S. Treasury, it was another strong reminder why one has to “stay in the game” with stock exposure in their portfolios, rather than pursue an “all-in or all-out” approach.
The same applies to the types of stocks one owns. Investors who invested in international stocks in 2016 were envious of U.S. stock returns that year, but were certainly rewarded in 2017. Similar changes in the cyclical returns of large company equities versus small company equities, or “Growth versus value”, demand investors stay properly diversified and stay clear of “recent bias” syndrome.
In the short term, the outlook for stocks is less compelling as high valuations in most sectors call into question the sustainability of this remarkable bull market. After such a long-period of gains, it is not uncommon to experience a decline of 10% or more. We are not predicting such a correction, but we would not be surprised by it either.
Remember our main tenets for investing:
- Stay diversified to meet your long- term investment objectives
- Keep cash on hand for short-term needs
- Keep investment expenses reasonable, relative to a properly diversified portfolio
Best wishes in the New Year!
- WSJ December 30-31,2017
- WSJ December 30-31,2017
A diversified portfolio does not assure a profit or protect against loss in a declining market. Investors cannot invest directly in indexes. The performance of any index is not indicative of the performance of any investment and does not take into account the effects of inflation and the fees and expenses associated with investing. The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change with notice. Information is based on sources believed to be reliable; however their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results. Advisory services offered through McCabe & Associates, Inc., a Registered Investment advisor.