January 22, 2018
Dear Friends, Clients and Associates,
We are running out of superlatives to describe the U.S. stock market, but put simply, 2017 was a truly remarkable year. Stocks rose each and every month (the first year ever that has happened) along with a 9th consecutive year of positive returns for the S&P 500 Index (21.7%) tying the historic 1990’s bull market. By year-end, the S&P 500 Index had rallied for more than 400 days without registering as little as a 3% decline. This is the longest such streak in 90 years of market history, according to Ned Davis Research.
Foreign stock returns were even stronger, with developed international markets gaining 26.4% and emerging markets up 31.5%.
The Core bond Index was up 3.5% in 2017 which was close to the Index’s yield at the start of the year.
Looking Ahead 2018
What is driving the market? The U.S. economy. This year GDP is forecasted to be 2.9%, the best pace since 2015. Business investment, rising inventories and brisk home building will be the biggest drivers.
On the political side, the U.S. tax cut has been providing an incentive for companies to hire and spend more. This kind of stimulus is often viewed as a short term boost to economic activity with the incremental margin benefit from lower taxes to be competed away (in most cases).
The Global economy remains in a synchronized recovery-the strongest since the financial crisis. In terms of the near-term macro outlook, the consensus view is that there is little risk of a U.S. or global economic recession in 2018.
Even though we seem to be in a Goldilocks economic environment (not too hot and not too cold), we never want to underestimate the potential for a surprise negative shock. We continue to recognize the unwinding of the unprecedented monetary policies that created historically low interest rates that have yet to be normalized. We expect inflation to remain largely contained, with prices logging a gain of 2.1% over the course of 2018, driven largely by increases in services, such as medical care.
We expect to see further gains in the U.S. stock market in 2018, with slightly better gains overseas in European and emerging market stocks.
We continue to believe and stress that successful investing involves keeping our eyes on long term financial objectives and the underlying fundamentals that ultimately drive investment returns. Part of our job here at Hillspring Financial is to help clients become self-aware about their own risk tolerance and investment temperament. This enables them to remain disciplined and patient-during the good times as well as the inevitable challenging periods-on the road to achieving their long-term success.
We believe we have the best clients and greatly appreciate the opportunity to serve and work with you on your financial journey.
Kent G. Forsey, CFP®