Overview

The year 2017 was eventful, to say the least. President Trump and Congress tried, without success, to repeal the Affordable Care Act, known as Obamacare. However, the new year-end tax law included the elimination of the individual health insurance mandate.

The U.S. economy started slowly but picked up steam as the year progressed. The gross domestic product expanded at an annual rate of 3.2% in the third quarter. The unemployment rate fell from 4.7% to 4.1%, while upwards of 2 million new jobs were added. The Federal Reserve, based on the strength of the economy and labor market, began to roll back its stimulus program and raised interest rates three times during the year.

The stock market reached several historic highs in 2017. Consumer income rose and purchases increased, but inflation remained stubbornly below 2.0%. Business investment expanded in 2017 and is expected to surge in 2018. The year ended with the passage of sweeping tax reform legislation.

The Markets

Equities

The stock market saw several benchmark indexes reach record highs throughout 2017. Strong corporate profits and a general upswing in domestic and global economic growth helped push equities to new highs. Market volatility was historically low throughout the year, as the benchmark indexes saw very few weeks of negative returns.
 

Bonds

Interest rates moved incrementally higher, while 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%.

FOMC/interest rates

The Federal Open Market Committee raised interest rates three times during 2017. 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.

Eye on the Year Ahead

The year 2018 is off to a rousing start, with the passage of major tax overhaul legislation that could impact consumer and business income and equities. The U.S. economy, which got off to a slow start in 2017, picked up steam throughout the year and enters 2018 in pretty good shape. The U.S. economy as well as major world economies are expected to continue to grow this year. The Fed has indicated that it expects to raise interest rates three times this year despite stubborn inflationary expansion.

To download our full newsletter for the fourth quarter, click here.

Click here for Vice President & Chief Investment Officer Michal Emory's thoughts on examining our investment behaviors.

Happy New Year!