State of the Markets

What happened?

2017 was quite eventful. We witnessed the largest tax reform bill passed since 1986, strong global growth, record stock market values, and the rise of crypto-currencies. The US stock market rose to an all-time high, increasing by 19.42%[2]. The international stock market gained significant momentum, rising by 21.78%[3] as we saw long overdue global synchronized growth. US Bonds continued to rise in value, inching upward by 3.54%[4].

What’s Next?

We anticipate 2018 being be a good year for stocks, although not quite as good as 2017. Due to the passing of the Tax Cuts and Jobs Act, we should expect more US companies to buy back their stock, increase dividends, and/or increase capital spending - all of which are positive for investors. International investments, specifically European and Emerging Markets, continue to represent opportunity in 2018. Factors such as a declining US Dollar, the outcome of key European elections, and lower stock price valuations (as compared to the US), should all contribute to a continual rise in international markets.

Bonds are a different story however, as it will likely continue to be a challenging environment compared with stocks. As a sign of confidence in the economy, the Federal Reserve is expected to raise interest rates 3 times this year. While this should increase the yields of short term bonds, providing more income to new investors, it will decrease the value of existing bonds. It is important to remember that as interest rates rise, the value of bonds fall, and vice versa.

Many clients have asked if we think a recession is on the horizon, and the short answer is no, we don’t think it is very likely. In our view, the primary risks that could lead to a recession are geopolitical concerns, such as North Korean aggression, or short-term interest rates rising too quickly from an overly aggressive Federal Reserve – both of which we believe to be unlikely. While we remain optimistic about the markets in 2018, we do believe we will see a short-term market pull back.

What does all of this mean for you?

Toward the end of 2017, we increased our international and developing market stock position targets to take advantage of continued global growth in 2018. We remain steadfast in our belief that a well-diversified portfolio will be the key to riding out any market euphoria or downturns.

Our team continually monitors the global markets and our clients’ portfolios. We meet as a team on a monthly basis to discuss topics that include the market, portfolio construction, and the economy. Quarterly, a detailed market commentary from our Investment Director, Linus Park, CFA, CFP® is made available to you, and your McAdam portfolio performance is uploaded to your Private Client Portal.

We appreciate the trust and confidence you place in our team and remain available to discuss any of our views or answer any of your questions.

[1] Does not apply to all plans. Review your retirement account plan documents for details.

[2] The US stock market is represented by the S&P 500 (PR), which does not include the reinvesting of dividends.

[3] The international stock market is represented by the MSCI EAFE (PR), which does not include the reinvesting of dividends.

[4] Bonds are represented by the Bloomberg Barclays US Bond Aggregate.