Tuesday, January 2nd, 2018
“What a Year”
Before we flip our focus to 2018, we should take some time to reflect on what a remarkable year 2017 was for the stock market. Consider that:
- The S&P 500 posted a positive total return every month in 2017. Just like the UCF Golden Nights, this was the first time in history it has gone undefeated.
- The Dow closed at an all-time high 71 times in 2017, more closing highs than any other year in history.
- 9 out of 10 sectors in the S&P 500 were positive (only Energy not) with all 9 of those sectors hitting new all-time highs.
- The S&P 500 ended up for the ninth consecutive year, tying the record run from 1991-1999.
- The largest drawdown (“selloff”) during the year was 2.8% from peak to trough, the 2nd lowest in history, trailing only 1995.
- Over 95% of days in 2017 had an intraday trading range (high to low) of less than 1%, making it the least volatile year in history.
There have been higher returns posted for stocks in previous years, but we believe 2017 will go down as one of the best “risk-adjusted” years to make money in history. This smooth ride came despite a record number of devastating natural disasters, hostility with North Korea and political disruption of a new administration.
As we start to think about return expectations for 2018, we would caution readers to avoid anchoring to the hard numbers from consensus Wall Street or financial pundit forecasts. As we have learned from experience, equities over time provide average returns between 9-10%, but they do so in a non-linear fashion. If you read forecasts for 2018, most call for returns of 8-10%, a safe bet for not being a poor outlier since that is right in-line with historical averages.
However, consider that since 1926 there has been only one year in which the total return of the S&P 500 actually ended up in the range of 8-10% (1993: 9.97%)despitethat being the closest range to the long-term average1. Meanwhile, there were six years in which returns fell in the range of 30-32% and seven years in the range of -8 to -10%. In other words, stocks are volatile so expect the unexpected.
As 2017 reminded us, the trend in fundamentals often impacts stock prices more than the actual math underlying the return expectations. And so far, the trends still look encouraging as we begin the New Year.
Jack Holmes, CFA® & Todd Feltz, CFP®
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which Investment(s) may be appropriate for you, consult your financial advisor prior to investing. Information is based on sources believed to be reliable, however, their accuracy or completeness cannot be guaranteed. Statements of forecast and trends are for informational purposes, and are not guaranteed to occur in the future.
All indices are unmanaged and may not be invested into directly. Advisory services offered through Feltz WealthPLAN, DBA of WealthPLAN Partners. Securities offered through Securities America, Inc., Member FINRA/SIPC. Feltz WealthPLAN and Securities America are separate entities.