The Stock Market
A year ago, our group had predicted (and hoped!) for a 6% return for the stock market in 2017. Even the most optimistic of our investment strategist sources had predicted a 15% return. Neither was correct (happily)! It was a year that surprised almost everyone. The Standard and Poor’s 500 Stock Index, the broadest measure of the stock market, gained 19.4% in 2017 – its strongest gain since 2013.
The primary factors that kept the stock market on an upward trend for most of the year were strong economic growth here and around the world, low inflation, and President Trump’s promise to cut taxes and regulations.
Technology was the top performing industry sector in 2017 followed by materials and healthcare. For our clients with individual stocks, our heaviest industry weightings throughout the year included two of those three sectors (healthcare and information technology). The three worst performing sectors were the energy, real estate and telecommunication industries, in which we had our lowest sector weightings.
Looking back, our somewhat heavy exposure in the consumer staples sector, especially in companies that were influenced adversely by Amazon’s involvement – detracted somewhat from results.
Our overall mutual fund approach proved effective throughout the year. Concentration in selected large capitalization stock funds, focused on technology and healthcare stocks, performed especially well, as did our focus on mid-cap stock funds. Where applicable, specialty technology and healthcare funds performed exceptionally well; specialty real estate and utility stock funds underperformed.
International stocks outperformed domestic stocks in 2017, reflecting strong economic growth in Europe and Asia. Moreover, there was less political tension, generally, overseas.
The Bond Market
The bond market, like the stock market, displayed little volatility in 2017. The yield on the benchmark 10-year U.S. Treasury Note, often seen as a gauge of investors’ sentiment about the economy, closed at 2.41% at year end. That yield was just slightly below its yield of 2.48% a year ago. Since bond prices move inversely to interest rates, most bond prices finished the year with modest gains. Combined with their interest payments, our individual bonds and bond funds were mostly positive for the year. Importantly, our bond philosophy of owning high quality bonds to provide a portfolio with reliable income, principal safety, and principal stability, proved effective.