Indices Annual Market Recap – 2017
Fundamentally, 2017 provided a good environment for equity investing, but at the end of the year, optimism was a little tempered. Higher equity valuations and the absence of a significant correction throughout the year made investors a little more cautious.
Throughout 2017, the global economy experienced a relatively steady, synchronized expansion amid low inflation, with low risk of inflation.
In the U.S., all three major indexes – the benchmark S&P 500 Index, the blue-chip Dow Jones Industrial Average and the tech-based NASDAQ Composite – reached record highs and posted record closes.
U.S. fiscal policy was supportive of growth, and the recently passed tax overhaul represents a potential upside for corporate earnings.
The U.S. economy was in expansion mode all year. Tight labor markets supported wage growth and the U.S. consumer, keeping recession risk low. Low inflation also supported the stock market rally. U.S. inflation was underpinned by tight labor markets, rising wages, and increasing food costs. It was capped by slowing shelter costs and other transitory factors have served to dampen inflation.
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Global Markets
Low inflation and accommodative monetary policies helped generate a synchronized expansion in the global economy. Non-U.S. equities spearheaded a global stock market rally throughout the year. They were boosted by a weaker U.S. Dollar and a strengthened economic backdrop.
Since the global equity markets hit their bottoms in late 2016, global assets have posted exceptional returns while experiencing extremely low volatility. Compared to historical averages, price fluctuations of riskier or higher-yielding assets were for the most part reduced.
Global equity markets were supported by a rebound in global trade. The global expansion was underpinned by a turnaround in export-oriented sectors and manufacturing activity.
Summary
2017 will go down as one of the most bullish years for global stocks in the last decade. The impressive returns can be attributed to one factor that has been mentioned the most this year. It is “a synchronized upswing in global economic growth”, or “synchronized expansion”. This means that all most of the major global economies are firing on all cylinders, taking their respective stock indexes with them.
The U.S. and global equity markets are set to finish the year at or near record highs. In the U.K., it’s the FTSE. In Germany, it’s the DAX. In Japan, it’s the Nikkei. In the U.S., the benchmark S&P 500 Index is up 19.9%, the blue-chip Dow Jones Industrial Average is up 25.3% and the tech-based NASDAQ Composite is up 29.3%.
At various times during the year, investors were able to overcome the first year’s chaos in the White House, the on-again, off-again Brexit negotiations and periodic ballistic tests from North Korea.
Although the global equity markets posted strong performances, volatility was also subdued with the VIX or volatility index sitting a little higher than its all-time low.
So essentially, the 2017 stock market will go down in history as one of the first investment classes to close at or near all-time highs while volatility hovered at or near all-time lows.
This article was originally posted on FX Empire
