As much of the Mid-West and East Coast has been gripped by frigid temperatures in recent weeks, markets continued to heat up. 2017 was a year of record breaking market strength, and all indications are that the enthusiasm remains robust in 2018.
December brought a triumphant end to what was an extraordinary year for equity markets globally. Standouts for the month included the FTSE 100 (+4.9%) and EM Equities (+3.5%), while mainstream European and US markets were more modest (+1.6% for the Stoxx 600 and +1.1% for the S&P 500). The US market performance reflected a record 14th month of performance, which reflects the general positive mood that flowed from the passing of major tax reform. The promise of corporate and personal tax cuts provided unstoppable momentum within the US markets, while in Europe, investors were more skeptical of the likely impact of this reform.
The US Fed raised interest rates, as was widely anticipated, in December and cited improving economic and inflation indicators as well as the expectation of a further slate of rate rises in 2018. The interest rate curve remained somewhat flat reflecting uncertainty regarding the long term picture of the economy and supporting bond holdings generally. High yield and other corporate debt also remained particularly strong throughout December, but lead performers were commodities, as copper added 8.7% (bringing its year to date to +31.7%) and oil prices rose by over 5%.
This strong optimism masks that 2017 was actually quite a subdued year in terms of volatility, due to the remarkable synchronization of growth and market sentiment globally. Currency movements were meaningful for the Euro (+14% v. the USD) but otherwise uneventful, reflecting a comfortable “holding pattern” that also is indicative of what some commentators are terming “irrational complacency”.
The only investors that are not complacent, perhaps, are holders of cryptocurrency which has been subject to “carnage” or “collapse” just this week as investors were spooked by regulatory crackdowns. Bitcoin halved from its mid-December highs, but it still trading at over $10,000 per coin.
So, thus far, there is little to speak of in terms of a January effect, with all indications that investors are enthusiastically coming in from the sidelines – often a sign of a ripe bull market. It will be interesting to observe whether volatility remains subdued although it is not expected to do so.