The U.S. equity markets ended the year at all-time highs, with the S&P 500 up 21.83%.
An improvement in the strength of the global expansion and low interest rates provided support for stocks to move higher in 2017.
One of the most remarkable things about 2017 was the lack of volatility; the largest decline for the S&P 500 was a mere 3%. The average decline has been over 14% during the past 37 years.
We expect inflation to remain low. Factors such as demographics of an aging population, the displacement of labor by new technologies, and the trend towards growing populism around the world will keep inflation at bay in the long run.
The Tax Cuts and Jobs Act is expected to stimulate economic growth through lower corporate and individual tax rates.
With U.S. equity valuations currently well above historical averages, we expect modest equity returns in the longer term.
A shift toward global monetary policy normalization is likely to reduce the liquidity growth stimulus. This shift would likely reduce support for global asset prices.
Emerging and developed market equities outperformed the U.S. markets last year for the first time since 2012.
We increased our international equity exposure based on improving growth prospects, attractive valuations and a weaker U.S. dollar. Foreign equity returns have decoupled from the U.S. markets, providing portfolios added diversification and return.
The Fed has the confidence to continue gradually hiking its short-term policy rate and start its balance sheet unwinding. We expect a continued increase in short-term rates with little movement in long-term rates.
- This information has been compiled using data and other statements of fact derived from sources which we believe to be accurate and reliable. However, such data and other statements of fact have not been verified by us, and we do not make any representations as to their accuracy or completeness. Any opinion expressed herein reflects our judgment at this date and is subject to change.