November 2017 Financial Markets Summary
Global stock markets continue to chug along with domestic stocks up 10%-15% year-to-date, developed international up 21% and emerging markets up over 32%. Bonds have also generated positive returns, but with the expectation for steadily increasing interest rates, we thought it might be helpful to explain the Federal Reserve’s role, recent history and potential future outlook.
The Federal Reserve has a dual mandate to foster economic conditions that achieve both stable prices (inflation) and maximum sustainable employment. In the midst of the financial crisis in 2008, the Federal Reserve stepped in and lowered the Fed Funds Rate from 5% down to an unprecedented 0% to provide stimulus to the struggling economy. They also began purchasing assets such as U.S. Treasuries to prevent a potential collapse of the financial system. These methods were the primary catalysts for the financial recovery and the subsequent 350% domestic stock rebound from their March 2009 lows.
The Federal Reserve is making some significant changes now that the economy seems to be on more stable footing. The unemployment rate dropped from the 10% peak in 2009 to just over 4% today. Prices have also been relatively stable with core inflation around 1.7%. They have raised the Fed Funds rate from 0% to 1% and plan to continue hiking these rates gradually back to more normal levels. They have also begun the process of slowly unwinding their colossal $4.5 trillion balance sheet. To add uncertainty, Fed Chair Janet Yellen’s term is up in February. She may keep the position, but early indications are for current Fed Governor Jay Powell to be nominated as the next Chair.
All of these measures suggest an increasing interest rate environment in the years ahead. Due to this expectation, PDS continues to advocate shorter-term bonds in client portfolios. They have historically exhibited less downside risk during rising interest rate environments while still generating current income.
2017 continues to be a reminder that today’s headlines and tomorrow’s reality are seldom the same.
|Asset Index Category||Category||Category||Category||10-Year|
|3 Months||2017 YTD||2016||Average|
|S&P 500 Index – Large Companies||4.2%||15.0%||9.5%||5.2%|
|S&P 400 Index – Mid-Size Companies||4.2%||10.5%||18.7%||7.3%|
|Russell 2000 Index – Small Companies||5.4%||10.7%||19.4%||6.1%|
|MSCI ACWI – Global (U.S. & Intl. Stocks)||4.0%||17.7%||8.4%||1.5%|
|MSCI EAFE Index – Developed Intl.||4.0%||21.7%||1.0%||1.1%|
|MSCI EM Index – Emerging Markets||5.4%||32.3%||11.2%||0.6%|
|Short-Term Corporate Bonds||0.2%||1.8%||2.1%||2.4%|
|International Government Bonds||-0.9%||7.2%||1.6%||2.4%|
|Bloomberg Commodity Index||2.4%||-0.7%||11.8%||-6.9%|
|Dow Jones U.S. Real Estate||0.0%||7.1%||7.6%||5.2%|
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only. Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy. It is provided with the understanding that no fiduciary relationship exists because of this report. Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice. PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice. If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives. All rights reserved