After a solid stock market performance in 2016, returns in 2017 continued to rally at the surprise of many financial skeptics. Twelve months ago, a common view among money managers and analysts was that financial markets would not repeat the returns from the previous year.
Some cited North Korea’s weapons build up, the implementation of Brexit and conflicts in the Middle East as justification for a pessimistic outlook on stocks. Others expressed concern that our own political problems at home might drive stocks lower in value.
Global stock market performance from 2017 with highlights of some of the year’s prominent headlines.
Despite these predictions, global stocks advanced broadly in 2017, with emerging markets taking a significant double-digit lead, followed by foreign developed markets and US stocks closely behind. Though investors with US-only portfolios did well last year, those who diversified globally earned even higher returns.
Some market watchers may claim that last year’s stock market rally was the direct result of government deregulation and reductions in corporate tax rates. Though these attributes contributed to a positive outcome, we disagree that these were the principal causes of the global advance.
Instead, we believe that financial markets benefited mostly from worldwide economic growth and low inflation, rather than changes to domestic policies. This is good news for investors as it suggests that rising stock prices were likely driven by solid economic fundamentals rather than a speculative bubble.
We are not in the business of making market forecasts and caution readers not to interpret our thoughts otherwise. Instead, we’d like to underscore the importance of following an investment approach based on diversification and discipline. This will allow investors to efficiently pursue the long-term returns the capital markets offer.
-Robert Ades, CFA
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2017 Market Review by Bryan Harris of Dimensional Fund Advisors (available on request). Past performance is not a guarantee of future results.
Chart source: Dimensional Fund Advisors and MSCI. In US dollars, net dividends. Index is not available for direct investment. Performance does not reflect the expenses associated with the management of an actual portfolio.