Heading into the year, 2017 was viewed by many investors with a great deal of trepidation and concern. Political turmoil in the US, uncertainty in the global economy, rising tensions in the middle east, strained relations with North Korea, and an eight year-old domestic bull market gave many investors pause for the prospects of 2017.
For all the potential causes for concern, 2017 turned out to be one of the strongest years in recent memory, both financially and economically. The unemployment rate in the United States reached a 17-year low of 4.1%. The Dow Jones Industrial Average (DJIA) gained 25.1% for the year, while setting 71 closing records along the way! The S&P 500 index gained 19.4% for 2017. And the domestic economy appears to have grown at a 2.5% clip for all of 2017, with two quarters of 3% growth.
The positive news was not solely reserved for the US economy or domestic equity markets, however. The index for international developed markets (MSCI World ex-USA index) gained 24.2% in 2017.And emerging markets performed even better than their more developed counterparts. The MSCI Emerging Markets index gained 37.3% in 2017. Economically, 45 countries tracked by the Organization for Economic Cooperation and Development (OECD) saw economic expansion in 2017. Domestic equity markets even shrugged off the three rate increases the Federal Reserve implemented throughout 2017. Equity markets typically pause or retreat slightly as interest rates increase and fixed income investments become more attractive to investors.
Finally, the tax reform bill signed in December provided additional momentum, ensuring equity markets would finish 2017 strong. The tax cuts are expected to further stimulate the economy and markets in 2018.
The strong equity market returns enjoyed by investors in 2017 contrasted the views and predictions of many analysts and money managers that market returns would be muted and not repeat the strong performance of 2016.
We will hear similar predictions for markets in 2018 and beyond. 2017 showed us just how difficult it is to predict market performance. 2017 also highlights the importance of having a disciplined and diversified investment strategy.
The following quote from DFA co- founder David Booth provides a helpful perspective as we deal with uncertain markets in 2018 and beyond. “The key is to have the correct view of markets and how they work. Once you accept this view of markets, the benefits go way beyond just investing money.”