As we begin to explore what 2018 will mean for financial markets around the world and domestically, it is important we stop and take note of what happened in 2017. Almost universally, it was a great year to be participating in the stock market.
US equity markets purred almost uninterruptedly higher for a solid 12 months. Financials soared 19.43% as they continued their recovery, and benefitted from the combination of stability and rate hikes.
Industrials pulled off an 18.01% gain this year, helped in large part by a 38% boon in aerospace and defence, which are seeing increased business from the government under a Republican administration.
The safer/more conservative plays, REITS, Utilities, and Consumer Staples, all turned in 9.07%, 9.18%, and 10.38% respectively. While these are far from poor performances, they fail to match the gangbuster performances of their riskier cousins in 2017.
Healthcare and Energy were two major stories of 2016. Healthcare was a laggard, turning in a 4.92% loss in 2016, while Energy led the market with a 25.32% return (although let us not forget that was made possible by the industry getting eviscerated the year before in 2015.)
This year they swapped roles. Energy was one of the only major industries to have a negative 2017, losing 4.30% this year. Healthcare on the other hand recovered, gaining 19.68%. Energy is stuck in the doldrums as a supply glut and international issues continue to plague profitability. Healthcare continues to be very legislation-based, but turned in a great 2017 all the same.
And we haven’t even discussed the best performer of 2017! That high honour goes to Information Technology, which turned in a whopping 35.51%. Semiconductors, internet software and services, cloud storage, you name it. If it was Tech this year, it probably outperformed.
Which brings us to a discussion of the “ethos” or attitude of what investing in 2017 was like. Growth plays won the day, heavily. “Value” stock picking underperformed. Institutional and retail investors were more interested in piling into Netflix and Amazon (despite 200 and 300 P/Es respectively) than they were in buying GE on the cheap as it plummeted by 40% this year (their P/E is at 21 right now). Bond returns were suppressed by interest rates remaining low (despite rate hikes this year), making conservative investment strategies less fruitful.
Many people were expecting some kind of correction or drop in 2017, but it never came. Instead, we had a powerful and fairly consistent rally that rewarded riskier allocations. Technology outperformed, Energy lagged, and the vast majority of market participants entered 2018 richer than they were before. If you haven’t already, we recommend meeting with your financial advisor to discuss the year going forward. Pick their mind, hear their strategy and plan, and discuss what is important to you. You’ll enjoy peace of mind afterwards knowing that you’re ready for whatever surprises 2018 has in store.