A Toast to 2017: The Year International Markets Staged a Comeback

2017 was a memorable year in many respects — a new administration, continued global political unrest, new market highs, hurricanes, cryptocurrency fervor and the passage of a sweeping tax bill to cap it off.

In financial markets, 2017 should go down as the year international equities staged a definitive comeback. Emerging-markets stocks surged approximately 37% 1 (in USD terms) with Chinese stocks leading the way, gaining over 50%.2 International-developed market stocks logged an impressive 25%-return3 (in USD terms) on the back of strong corporate earnings and favorable economic data.

This marked the first time since 2012 that international equities outperformed U.S. equities. After several challenging years of maintaining discipline — in the face of strong U.S equity-market performance — international diversification truly paid off in 2017.

Although U.S. stocks lagged international-market stocks, the S&P 500 still posted a stellar ~22%-return.4 This was in large part due to the strength of the technology sector, as “the combined market value of Apple, Alphabet, Microsoft, Amazon and Facebook soared 43% for the year.”5

World Asset Classes Chart-2017

Source: Morningstar®, preliminary data as of December 31, 2017.

While growth stocks in the U.S. outperformed, small-cap and value stocks were out of favor. The recent underperformance of these segments of the market has further dragged down the five and 10-year performance comparisons, relative to large-cap and growth stocks. For those worrying about high valuations across the spectrum of global asset classes, the value and small-cap segments still appear reasonable, from a relative valuation perspective.

How Did the Prognosticators Fare in 2017?

As we ring in the new year, it is customary to be inundated with forecasts from economists and market strategists. These forecasts should not sway you from your well-diversified, long-term investment philosophy. While the analyses can be interesting, the predictions themselves are highly unreliable — and when we look back, 2017’s forecasts were no exception.

Last January, a group of Wall Street strategists expected that the S&P 500 would gain about 5% for 2017.6 Although the direction of the market movement was correct, the S&P 500 ended the year with a percentage gain nearly four times higher than the group’s prediction.

What did 2017 mean for markets?

Wall Street strategists also expected that the Fed would raise rates in 2017, resulting in higher yields in the U.S., compared to other economies, and leading to a stronger dollar.7

The first part of the prediction was only half-wrong; the Fed did raise rates three times in 2017. Although this led to a rise in yields at the short end of the curve (2-year Treasury yields rose from 1.20% to 1.89% over the course of the year), the 10-year Treasury yield declined, contrary to strategists’ predictions. Bond bears be damned — the Bloomberg Barclays Aggregate Bond Index was up a solid 3.5%.8

The second part of the prediction was entirely wrong; the U.S. dollar, as measured by the ICE U.S. Dollar Index, depreciated by 9% for 2017.9 Rather than creating a headwind for U.S. investors in overseas markets, as predicted, the dollar movement ended up buoying international returns for U.S. investors.

Looking Ahead to the New Year

Attempting to make predictions about the market is a loser’s game. This is why we steer clear of crystal-ball gazing and focus instead on principles of diversification — which have proven, time and again, to beat a strategy of trying to predict which stocks will be next year’s winners or chasing a new, speculative trend. With the tailwind of 2017 behind us, let’s make a toast to the great year we have had and resolve to continue staying disciplined in 2018!

Hewins Financial Advisors, LLC d/b/a Wipfli Hewins Investment Advisors, LLC (“Hewins”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC) under the Investment Advisers Act of 1940. Hewins is a proud affiliate of Wipfli LLP. Information pertaining to Hewins’ advisory operations, services and fees is set forth in Hewins’ current Form ADV Part 2A brochure, copies of which are available upon request at no cost or at www.adviserinfo.sec.gov. The views expressed by the author are the author’s alone and do not necessarily represent the views of Hewins or its affiliates. The information contained in any third-party resource cited herein is not owned or controlled by Hewins, and Hewins does not guarantee the accuracy or reliability of any information that may be found in such resources. Links to any third-party resource are provided as a courtesy for reference only and are not intended to be, and do not act as, an endorsement by Hewins of the third party or any of its content or use of its content. The standard information provided in this blog is for general purposes only and should not be construed as, or used as a substitute for, financial, investment or other professional advice. If you have questions regarding your financial situation, you should consult your financial planner, investment advisor, attorney or other professional. Hewins does not provide tax, accounting or legal services.
Rafia Hasan
Rafia Hasan

CFA®, CFP® | co-Chief Investment Officer

Rafia Hasan, CFA®, CFP®, is the co-Chief Investment Officer for Hewins Financial Advisors, based in Chicago, IL. Rafia is a member of Hewins' Investment Committee and has a deep knowledge of the financial markets, specifically in the areas of alternative investments and private equity. She also specializes in personal financial planning and estate planning for women investors.

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A Toast to 2017: The Year International Markets Staged a Comeback

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