I spent the better part of the past weekend deciding what to write for this update. Originally, it was going to focus on how the markets have been ignoring bad news and delivering good results for the year. I was also going to make this update as brief as possible. I know there are many sources for getting updates and opinions on the markets these days, so if I do not have anything original to add, I should at least be brief. Then, before I could even begin typing up my notes this Monday morning, the news of the horrific shooting in Las Vegas broke. In a year that is now nine months old, I have seen enough human tragedy to last me a lifetime. Houston, Florida, St. Martin, Puerto Rico, London, Paris and now Las Vegas have all suffered tragedies. Other than feeling fortunate to be in Pittsburgh and offering prayers and financial support, it feels horrible to write about how good the financial markets are doing. However, that is my job and despite all the human tragedy, even the same day as the shooting, the US stock market is setting record highs.
Briefly, the Good News
All major stock markets were up for the third quarter and for the year-to-date period in 2017. The S&P 500 Index is up 14.24% for the year if you reinvested dividends in the index. The S&P 500 is the large-cap stock index. We also use mid-cap and small-cap stocks in our portfolios. They are up 9.40% and 8.92%, respectively, so far in 2017. The best stock category this year has been international stocks. The MSCI EAFE Index is up 17.21% year-to-date. We use all the categories above in most of our client portfolios so no matter how you mix the numbers above, chances are your equity performance was very strong for the past nine months. The broadest measure of domestic bond performance, the Bloomberg Barclays US Aggregate Bond Index, was up 3.14% year-to-date in total return. As we all know, interest rates are very low and with the Fed now raising rates, many bond categories will be facing headwinds for the foreseeable future. However, with the backdrop of global tension (Russia, North Korea, ISIS) and gridlock in Washington, bonds have performed fairly well up to this point in the year.
Next Three Months
Historically, when financial markets have begun a year well, they have ended it well. The current momentum of stocks combined with the prospect of tax reform should lead us to new highs by year end. The financial markets are supposedly predictors of economic activity in the future. Therefore, much of the gains in the stock markets this year are predicated on future economic growth. It would be nice if Mother Nature and humanity would combine to be a little kinder the next few months so we could enjoy our financial gains and, more importantly, peace of mind.
Mike Kauffelt, CFA
Co-CIO, Bill Few Associates, Inc.
All data from Morningstar