Investment Management – Fourth Quarter 2017
It is beginning to sound like a broken record, but the stronger-than-expected economic growth has boosted investor confidence and produced excellent returns for equities around the world. Looking forward, we expect U.S. growth to stabilize and the global economy to grow stronger. Driving the global economic expansion is central bank easy monetary policies, low interest rates, low inflation and the rise in emerging economies’ commodity prices.
Not only has the strength been impressive, but the stock indices have also been resilient. In 2017, the largest decline for the S&P 500 was barely 3%, compared to an average intra-year decline of 14% since 1980. The last calendar year with such a low intra-year decline was 1995.
For 2017, the total return of the large capitalization S&P 500 was 21.8%, driven mainly by a dramatic outperformance of technology companies. Mid and small capitalization stocks were relative underperformers, though still posted strong returns of 16.2% and 13.2%, respectively. After several years of lackluster performance, international stocks, as tracked by the MSCI EAFE, rose 25.0%. Emerging markets roared back with gains of over 37%.