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January 6, 2018

Bernardo Wealth Planning 2017 Year in Review

Key Points:

  • 2017 was a very good year for stocks
  • Bonds had a positive return, with the yield curve flattening
  • Tax reform was passed by Congress

2017 turned out to be a very good year for US stocks.  The S&P500 completed its ninth consecutive year of positive returns, up 21.83%.  Since the market low in March of 2009, the S&P 500 has grown 295% according to JPMorgan.  This bull market in stocks has coincided with one of the longest economic expansions in the United States.

Growth stocks were the leaders last year with the Russell 1000 Growth up 30.21%. Technology (+38.83%), materials (+23.84) and consumer discretionary (+22.98%) were the best sectors of the market, while telecom (-1.25%), energy (-1.01%) and real estate (+10.85%) were the laggards.  From a size standpoint, large cap domestic companies outperformed their small cap counterparts with the Russell 2000 returning 14.65%.  Mid-caps fell in the middle, +18.52%.

International markets outperformed the US with developed markets returning 25.03% while emerging markets grew 37.28%.  China (+54.07%), India (+38.76%) and France (+28.75%) attracted strong international investment.  Healthy global economic growth, low interest rates and mild inflation have increased the prospects for risk taking across the world. In these times of strong stock returns where it seems like everything is going up, we like to remind ourselves that markets can correct without notice and to be conscious of the risks that may or may not be apparent in the investing world.

Fixed income markets produced a respectable 3.54% return in 2017.  High yield bonds (+7.50%) saw strong returns as credit spreads narrowed.  The yield curve flattened, as short-term rates increased while long-term rates dipped in the fourth quarter.  Interest rates have remained rather tame as inflation has been kept in check.  As the Federal Reserve experiences a changing of the guard next with newly nominated Jerome Powell to succeed Janet Yellen, we would like to tip our hat to the exiting Fed Chief.  Chair Yellen did a very good job at navigating the economy to full employment and being transparent with the Fed’s movement of interest rates so as to not shock the system.  We think Jerome Powell will continue in the same manner as he takes the reigns.

Tax reform was passed by Congress at the end of last year, bringing rates down for corporations and individuals.  The US corporate tax rate decreased dramatically from 35% to 21%.  This move is an immediate improvement to the bottom line for corporations, boosting their value and subsequent stock prices.

Sources: Morningstar, JPMorgan, Wall Street Journal

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