Economic Update, January 2018

Economic Update, January 2018

February 12, 2018

HAPPY NEW YEAR!!  Equities were mixed in December, with the Dow Jones Industrial Average (Dow) down about 4/10ths of 1%.  The Standard & Poor’s 500 (S & P 500) and Nasdaq were up about 1% and 4/10ths of 1%, respectively. Small cap stocks were down about 6/10ths of 1% for the month, based on the Russell 2000 index and International equities were up about 2.2% for the month based on the Dow Jones Global index, ex-U.S.  Growth for the quarter was more reflective of the longer-term trend, with the Dow, S & P 500, and Nasdaq up 7.9%, 6.1%, and 6.3%, respectively.  Small cap stocks and international stocks were also up, but to a lesser degree, with the Russell 2000 up 3% and the Dow Jones Global Index, ex-U.S. up about 5% for the quarter.

Interest rates, as measured by the ten-year Treasury yield, were slightly lower for the month, at 2.39% compared to 2.42% at the end of November.  In general, short-term rates have gone up and long-term rates have remained relatively stable maintaining a positively sloped yield curve in which long-term rates remain higher than short-term.  If short-term rates move above long-term rates, it’s called an “inverted” yield curve, and many feel this signals a recession.

For the year, stocks had strong gains with the major indices up between 22% and 29%.  This is in contrast to the Aggregate Bond Index, up 3.5% for the year.  Most analysts were surprised by the magnitude, but not the direction, of the market in 2017.  Looking forward, there is a consensus that equities should continue to grow.  Bob Doll, Chief Equity Strategist for Nuveen Asset Management, LLC, expects to see continued global growth during 2018 and lower unemployment.  These, with other factors, should lead to corporate earnings growth and anticipated Gross Domestic Product (GDP) growth of around 5%, according to Nuveen.

While 2018 should see market growth, this is not without risk.  There are many varying statistics illustrating that market volatility has been low for some time.  We remind investors to expect volatility, which could come in the form of a correction (a decline of at least 10%), or significant day-to-day movement. 

We remind clients that investing should be for the long-term.  Speculating over the short-term is high risk and not a strategy that we recommend.  As we start 2018, it’s a good time to review your long-term strategy, risk tolerance, and objectives.  Please feel free to call us to set an appointment.  We are available for telephone meetings, virtual meetings, and of course, in person!  We look forward to a great 2018.