Annual Market Snapshot 2017
The stock market saw several benchmark indexes reach record highs throughout 2017. Market growth occurred despite several events that could have been challenging, such as the Russian probe, Federal interest rate increases, damaging hurricanes, domestic violence, and a potential struggle over the debt ceiling. Nevertheless, strong corporate profits and a general upswing in domestic and global economic growth helped push equities to new highs. Market volatility was generally low throughout the year, as the benchmark indexes saw very few weeks of negative returns. The large caps of the Dow closed the year with gains exceeding 25%, while the S&P 500 expanded over 19%. The small caps of the Russell 2000, which grew over 19% in 2016, enjoyed a more modest, yet noteworthy, year-over-year climb of over 13%. The Nasdaq gained nearly 30% over last year’s closing value, driven by robust performances from the technology sector. Globally, stocks were also higher. The Global Dow and the MSCI EAFE each closed 2017 up over 20%, while the StOXX Europe 600 posted a year-over-year gain of about 10%.
As stock prices soared for much of 2017 and interest rates moved incrementally higher, the demand for long-term bonds was marginal. Yields on 10-year Treasuries were volatile for the second straight year, ultimately falling below their 2016 year-end totals. The yield on the benchmark 10-year Treasuries closed 2017 at 2.41%, down from the 2016 yield of 2.44%. During the early part of the year, bond prices rose as yields sunk below 2.30%. However, as investors saw a strengthening economy and rising interest rates, a period of bond sales occurred, which peaked during the last quarter, ultimately pushing yields closer to last year’s final value.
It took almost the entire year, but oil prices began to surge at the end of 2017, reaching over $60.00 per barrel. Oil prices dipped below $45.00 per barrel, eventually hovering around $51.00 per barrel for much of the early part of the year. However, U.S. oil prices soared nearly 27% since September as OPEC limited supplies while demand increased. Retail regular gasoline prices closed the year around $2.472 per gallon on December 25, about $0.163 more than a year ago.
The Federal Open Market Committee raised interest rates three times during 2017. The first increase occurred in March, followed by a rate increase in June and another in December. Each rate increase was 25 basis points for a total rate increase of 75 basis points. Following each rate increase, the Committee expressed the expectation that the labor market would remain strong and the economy would continue to expand, while noting that inflation has not risen as quickly as anticipated. The Committee forecasts three 25 basis point rate increases in 2018.
The dollar weakened in 2017, particularly against its performance for much of 2016. The Wall Street Journal Dollar Index, which measures the U.S. currency against the currencies of 16 other countries, closed 2017 at $85.98, down from its 2016 year-end mark of $93.26 – a decrease of almost 9%. This marks the first annual decline in the value of the dollar in five years. Stagnant inflation and positive economic strengthening in other parts of the world weighed on the U.S. currency. A weakening dollar could help exports, particularly if this trend continues into 2018. However, consumers may not be so happy because the cost of imports should rise with the dwindling value of the dollar.
Gold rose roughly 15% on the year, closing 2017 at $1,305.10. A weakening U.S. dollar, political unrest, and minimal impact of the Fed’s interest rate hikes contributed to the surge in gold prices.