The year 2017 was eventful, to say the least. President Trump and Congress tried, without success, to repeal the Affordable Care Act, known as Obamacare. However, the new year-end tax law included the elimination of the individual health insurance mandate. The U.S. economy started slowly but picked up steam as the year progressed. Ten years after its onset, the financial crisis officially came to an end in 2017. The gross domestic product expanded at an annual rate of 3.2% in the third quarter. The unemployment rate fell from 4.7% to 4.1%, while upwards of 2 million new jobs were added. The Federal Reserve, based on the strength of the economy and labor market, began to roll back its stimulus program and raised interest rates three times during the year. The stock market reached several historic highs in 2017. Consumer income rose and purchases increased, but inflation remained stubbornly below 2.0%. Business investment expanded in 2017 and is expected to surge in 2018. The year ended with the passage of sweeping tax reform legislation.
The Markets
Equities: The stock market saw several benchmark indexes reach record highs throughout 2017. Market growth occurred despite several events that could have been challenging, such as the Russian probe, Federal interest rate increases, damaging hurricanes, domestic violence, and a potential struggle over the debt ceiling. Nevertheless, strong corporate profits and a general upswing in domestic and global economic growth helped push equities to new highs. Market volatility was generally low throughout the year, as the benchmark indexes saw very few weeks of negative returns. The large caps of the Dow closed the year with gains exceeding 25%, while the S&P 500 expanded over 19%. The small caps of the Russell 2000, which grew over 19% in 2016, enjoyed a more modest, yet noteworthy, year-over-year climb of over 13%. The Nasdaq gained nearly 30% over last year’s closing value, driven by robust performances from the technology sector. Globally, stocks were also higher. The Global Dow and the MSCI EAFE each closed 2017 up over 20%, while the StOXX Europe 600 posted a year-over-year gain of about 10%.
Bonds: As stock prices soared for much of 2017 and interest rates moved incrementally higher, the demand for long-term bonds was marginal. Yields on 10-year Treasuries were volatile for the second straight year, ultimately falling below their 2016 year-end totals. The yield on the benchmark 10-year Treasuries closed 2017 at 2.41%, down from the 2016 yield of 2.44%. During the early part of the year, bond prices rose as yields sunk below 2.30%. However, as investors saw a strengthening economy and rising interest rates, a period of bond sales occurred, which peaked during the last quarter, ultimately pushing yields closer to last year’s final value.
Gold: Gold rose roughly 15% on the year, closing 2017 at $1,305.10. A weakening U.S. dollar, political unrest, and minimal impact of the Fed’s interest rate hikes contributed to the surge in gold prices.
Eye on the Year Ahead
The year 2018 is off to a rousing start, with the passage of major tax overhaul legislation that could impact consumer and business income and equities. The U.S. economy, which got off to a slow start in 2017, picked up steam throughout the year and enters 2018 in pretty good shape. The U.S. economy as well as major world economies are expected to continue to grow this year. The Fed has indicated that it expects to raise interest rates three times this year despite stubborn inflationary expansion. The housing market should continue to grow, especially if builders pick up the pace of new residential construction to add to dwindling inventory. However, political unrest continues to plague Washington, with the cloud of the Russian investigation hanging overhead as we begin 2018.
Provided by Ed Wettig, CFP, Wettig Capital Management which offers investment management, financial planning and retirement income strategies. Securities and investment advisory services offered through Royal Alliance Associates, Inc. Member FINRA/SIPC and a Registered Investment Advisor. Wettig Capital Management is independent of Royal Alliance Associates, Inc. and not registered as a broker/dealer or investment advisor.
