Stock markets around the world posted robust gains in 2017. In the U.S., strong earnings reports in the last quarter propelled stocks to record highs. At year-end, the Dow was closing in on the 25,000 mark and the S&P 500 approached 2,700 for the first time. The U.S. economy continued to show strength with third quarter gross domestic product (GDP) at an annualized rate of 3.2%, following a solid second quarter growth rate of 3.1%.
The strongest sector was technology, which posted a return of almost 39% for the year. Energy and telecom struggled; both lost about 1% for the year. While smaller U.S. stocks still had significant growth for the year, they underperformed larger U.S. stocks.
As strong as the U.S. market was in 2017, it still underperformed international stock markets, especially emerging markets. The emerging market index was up over 38% in 2017. A weaker U.S. dollar helped increase international returns.
Although the Federal Reserve increased interest rates three times this year, the yield on 10-year Treasury ended the year at 2.41%, largely unchanged from where it started the year at 2.45%. Even in this low interest rate environment, bonds delivered decent performance. High yield bonds outperformed the broader U.S. bond market.
Volatility in the U.S. stock market was near record-low levels this year. The largest intra-year decline in the S&P 500 was only 3% compared to an average intra-year drop of over 13%. This is surprising considering the recent political backdrop. With the market at record highs and volatility at record lows, investors might be wondering how much longer this will last. Rather than trying to predict the market based on hunches or headlines, disciplined investors who diversify and are mindful of potential risks, can let markets work for them over time.
|Index||4th Quarter 2017||Year-to-date|
|Dow Jones 30||10.96%||28.11%|
|Bloomberg Barclays U.S. Agg Bond||0.39%||3.54%|
|MSCI EAFE Index||4.27%||25.62%|
|MSCI EM Index||7.50%||37.75%|
Sources: Y Charts and J.P. Morgan Asset Management
Figures as of December 31, 2017. Past performance cannot guarantee future results.
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