Financial Markets Weekly: January 19th

January 25, 2018

Here's your financial markets weekly report for January 19, 2018.
2017 was a helluva of a ride. Stocks careened higher. Geopolitics dominated the headlines. And D.C.'s establishment parties railed against an ascendant outsider hell-bent on rewriting the rules of power politics.
The year saw a long-awaited increase in economic growth. A marked decrease in market volatility. Trump's inaugural year. Increasing bellicosity on the Korean Peninsula. An interminable Russian collusion investigation. Natural disasters in Texas, Florida, Puerto Rico and California. The #metoo movement. A Patriots Super Bowl. Star Wars. Terrorism. Bitcoin. Rising autocracies. Infinite on-demand entertainment. Fake news. A Warriors championship. The end of broader Syrian hostilities. China rising. Populism's ascent. $40 oil. Antifa. $65 oil. Elon Musk. GE's decline. Emmanuel Macron. The return of the Eighties. Artificial intelligence. Jeff Bezos. Mugabe's resignation. Weinstein's demise. An American Duchess. And a World Series title in Houston.
Something for everybody. Yin and yang. Rendering 2017 yet another interesting period in this grand human experiment.
From an investors standpoint? The only losers were those not participating. As every area of the market was higher.
The S&P 500 finished at 2,673. Up 21.83 percent. Mid-cap stocks finished up 19 percent. And small caps rose 16 percent. And yet, foreign equities prevailed. With developed foreign markets gaining 25 percent. And emerging markets rising 27 percent. On the fixed income side, the Barclay's Aggregate Bond Index rose 3.55 percent. Ten-year Treasurys rose nine percent. And municipal bonds climbed 4.72 percent.
The Dow crossed seven 1,000-point milestones over the last year. The fastest pace at which it has ever traversed such vast territory. And markets climbed higher with little to no volatility. In fact, the S&P 500 hasn't fallen more than 1.5 percent below an all-time high in more than 90 days. The second-longest streak of persistent highs in history.
In the swamps of D.C., the government shut down on Friday. As Republicans refused to tie immigration reform or a DACA fix to a current resolution or budget solution. Nor are we certain as to what one has to do with the other.
By Monday, Democrats caved. As DNC polling began to reveal the nation's consternation over the DACA distraction. And Congress approved a measure to fund the government for three weeks. So ending the three-day shutdown.
Looking for empirical evidence as to the primary differences between the public and the private sectors? Look no further than this shutdown. You'd never see a large private sector organization 1) close the doors due to differences in budgetary preferences, 2) arbitrarily tie such unrelated, non-urgent issues to matters of organizational operability, 3) and then celebrate the decision to kick the can down the road for another three weeks.
Adam Smith realized as much back in the 18th Century. Writing about free markets in his tome, The Wealth of Nations. Knowing that, unlike political outcomes, the beauty of the free market is that entrepreneurs seeking to get rich have to concurrently make their customers better off. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest," Smith wisely wrote.
Culturally, 2017's made at least one contribution to the national lexicon: fake news. Or the idea that those behind the news are reporting to suit their personal biases. As opposed to reporting the facts and allowing the public to decide.
Pew Research reports that the United States sits towards the lower end regarding the current level of trust in the media.
Hawaii issued a false warning of a pending missile attack last week. Sparking public panic as children were foisted down manholes and crying citizens ran for cover. 38 minutes later, it was revealed as a mistake. A state employee, working from a computer drop-down menu, selected the wrong option. Bringing waves of relief to a panicked populace. Followed by anger over how it occurred.
In response to December's tax reform, Apple announced that it will repatriate $252 billion in overseas cash. Choosing to pay $38 billion in reduced taxes. And adding $30 billion to its U.S. investment plan. The cash may also fund additional buybacks and dividends.
Just as water takes the path of least resistance, money flows where it's respected most. We repeatedly stated that the tax-reform bill could dramatically enhance national economic growth via significant earnings boosts at the consumer and the corporate levels. It stands to serve as a massive economic tailwind.
Finally, we ended up with a second-place finish in the Cincinnati Business Courier's annual 2017 stock picking contest. Posting a 39.8 percent gain. We held the lead heading into Q4. But Schaeffer Investment Research's Joe Bell road the homebuilding wave to post a stellar 48-percent return. Earning our congratulations.
Of course, as Avis says, we're second, but we try harder. And that is exactly what we promise to do in the year ahead. Happy New Year.
Stay tuned for your next financial markets weekly update…
Financial Markets Weekly Recap
Major indices finished up last week. The DJIA gained 1.04%. The S&P 500 rose 0.86%. The Nasdaq climbed 1.04%. While small cap tocks gained 0.36%. 10-year Treasury bond yields rose 10-basis points to 2.66%. Gold closed at $1,332.14, down $5.81 per ounce or 0.43%.
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