Market Performance Overview

  • Domestic equities continued their trend upward, with the S&P 500 contributing 6.6% in the quarter 21.8% in 2017.
  • Foreign equities continued to produce strong returns due to a strengthening global economy and falling dollar.
  • Domestic bonds were positive, but continue to face headwinds in 2018 due to potential future rate increases.
  • Foreign bonds produced strong returns in 2017 and offer additional diversification benefits as interest rates rise.

2017 Market Recap

2017 turned out to be a great year for investors as stock markets soared domestically and around the world. Interest rates remained low, providing plenty of liquidity for those that sought to borrow. Inflation and wage growth remained at near historic lows despite tightening labor markets and falling unemployment. Market volatility remained extremely low throughout the uncertainties faced in 2017. We saw political unrest in Washington, increasing threats of potential war with North Korea and hurricanes along the east and
southern coasts while fires broke out all along the southwest coastal line in southern California.

The Tax Cuts and Jobs Act, which passed in December, should provide fiscal stimulus domestically. While there will be winners and losers created by the change in tax law, tax bills will be reduced on an overall basis which should continue to spur consumer spending. Tax brackets for corporations were reduced from 35% to 21%, a move that will provide a direct boost to corporate profits. In addition, the repatriation tax holiday should bring cash held internationally back to the U.S. By Goldman Sachs’ estimates, S&P 500 companies hold $920 billion of untaxed cash overseas, and they estimate that $250 billion of that would be repatriated. Once repatriation occurs, our expectation is that the funds will be put to use either by investing the funds in the corporation, increasing dividends, or by executing share buybacks; all of which would be beneficial to equity investors. The attached summary titled “The Hunt for Loopholes Begins” will help shed some additional
light into some of the anticipated tax changes in 2018.

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