Third Quarter 2017 Market Review
The third quarter of 2017 continued this year’s strong run in equity markets around the globe. Despite ongoing headlines surrounding the persisting threat of North Korea, and very little major policy advancements from President Trump and the current administration, the stock market simply doesn’t seem to care. From a historical standpoint, valuations are at the higher-end of the range. However, labor markets continue to tighten, signs of wage growth are appearing more often, consumer and business confidence remain exceptionally high, and companies continue to grow both top and bottom lines. Commodity prices remain depressed, (although climbing gradually), and interest rates are still at nearly rock-bottom levels across the board. You wrap all of that up and you get a very healthy stock market.
One major rotation we’ve seen all year, which certainly continued in the third quarter, is the positive move by international markets; especially the Emerging Markets. Nearly all equity markets outside of the U.S. sat relatively stagnant from 2010 – 2016, while U.S. stocks have been on a historic run. As a general rule of investing, however, we always practice a globally diversified approach. Over the long-term, it has yielded greater overall results. We’re once again being rewarded for that approach, and for remaining patient while international equities lagged. Remember; from 2000 – 2010 investors actually lost money if they were solely invested in the S&P 500. During that period of time it was all about international equities, and that tide has now turned again.
Listed below are returns of five major indexes, through the third quarter:
BarCap US Agg Bond + 3.14%
S&P 500 + 14.24%
Russell 2000 + 10.94%
MSCI EAFE (Europe) + 19.96%
MSCI EM (Emerging Markets) + 27.78%
Another rotation that began in the third quarter, which we discussed in our Second Quarter Market Review, was a shift to more Value-oriented stocks. Most specifically; Financials started to move, climbing nearly 5% for the quarter. Much of these gains were realized in September, following higher interest rates, on the heels of the Federal Reserve’s expectation for one more rate hike in 2017. Financials have moved in lockstep with the 10 Yr. Treasury all year long and we expect that to continue. As we said a quarter ago, we also expect interest rates to finish the year higher than where they started. This would bode very well for our Financial positions.
One of our favorite old adages; “Markets will disappoint the majority.” Don’t be surprised to see at least some volatility as we head into the end of the year. October is historically a challenging month for the markets, while November and December are two of the best. We’ve been bombarded time and time again in 2017 with “All-Time High” headlines. We expect that to continue, which counterintuitively creates fear. The more who are afraid and expecting this market run to end, however, the more we believe it will continue.
From our family to yours, we want to wish you a wonderful and safe holiday season. Please let us know if there’s anything we can do to help. Thank you as always for your confidence and support.
Sloy, Dahl & Holst, Inc.