Given the intensity of the newswire over the 3rd quarter, undulations in the global capital markets were relatively subdued. As the shadow of a full blown global trade war persisted, questions swirled around NATO, U.S. intelligence, the Federal Reserve, the European Union and the U.S. Supreme Court. Add in contagion fears pertaining to emerging markets, a strong dollar and rising interest rates, and the quarter had the potential to be more erratic than the final results.
After a negative first quarter highlighted by an early year correction, U.S. stocks pushed into positive territory as foreign policy and international trade initiatives garnered momentum. In April, a coalition of U.S., British and French forces launched airstrikes against Bashar al-Assad in response to the use of chemical weapons in the Syrian civil war. In May, the U.S. exited the 2015 Iran nuclear accord and reinstated economic sanctions on Iran.
With the 1st quarter of 2018 in the books, nostalgia for the calm of 2017 is palpable. As you recall, major asset classes finished in positive
territory for the year, and financial markets proved to be relatively immune to negative headlines. Thus far, 2018 has exhibited an entirely
new temperament with volatility more in line with historical levels. Fears over interest rates, inflation, tariffs and trade wars have offered
perplexing juxtapositions to positive economic reports, tax cuts and government spending – all of which have contributed to financial
markets seesawing forcibly at times.
The global capital markets delivered strong results in 2017. Global stocks registered their second best year in the ten calendar years since 2008. Commodities notched their fourth best year and real estate its fifth best year over the same period. While US and world bonds have had multiple solid years over the decade, positive results in 2017 were a noteworthy triumph as interest rate headwinds continued to build.
Despite a flurry of unnerving headlines during the quarter, the volatility of global stocks remains at historic lows. Major indices in the U.S., Europe and Asia have managed to avoid a retreat of 5% or more so far in 2017. Typically, 5% pullbacks occur once per quarter with 10% corrections at least annually, and 20% drops once per market cycle for most developed stock markets.