The 4th quarter proved to be a difficult ending to a challenging year. Volatility, dormant since March, awoke once again with vigor taking investors on a topsy-turvy excursion that included touching all-time stock market highs in October and then plunging into a 19.8% correction in the S&P 500 by December, the second 10% plus decline of the year. There was no shortage of attention-grabbing headlines from midterm elections and tariff escalations, to border walls and another government shutdown, to riots in Paris, chaos over Brexit, and the possibility of a synchronized deceleration of the global economy.
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.