The bull market in stocks has continued into 2017. Following are some highlights for the quarter ended March 31, 2017. The Dow reached 20,000 for the first time, and closed February with 12 consecutive daily all-time highs before closing the quarter with a gain of 5.2%. The S&P 500 index gained 6.1% and has returned more than 300% over the past eight years. The Nasdaq recorded its 21st record close of the year on the way to a gain of 9.8%, for its best quarter since 2013.
TheEAFE index of companies from developed foreign countries gained 7.2% and the EAFE Emerging Market index, rose over 11%. The S&P GSCI index, which measures commodities returns, lost 2.5%, due in part to a 5.1% drop in the S&P crude oil index. However, silver gained 14.2% and gold prices gained 8.6% for the quarter. The Wilshire U.S. REIT index was flat.
The Fed raised interest rates 25 basis points. They project two more rate hikes this year based on their expectation that economic activity will expand moderately, employment will strengthen somewhat, and inflation will stabilize around 2% over the medium term. The 10-year Treasury bond yield closed at 2.39%.
The Bulls Are Saying: The “Trump Trade” will continue. Stock market gains since the election and through the first quarter are largely attributed to an expectation that individuals and corporations will soon be paying lower taxes and operating under fewer regulations. Additional expectations include a massive infrastructure spending plan and additional defense spending. All of the above would contribute to higher corporate profits, a booming economy, and increased prosperity for all.
The Bears Are Saying: There have been no details about the infrastructure package. Trump’s health-care plan died in Congress. The fact That Republicans couldn’t agree on health care reform challenges the conventional assumption that Republicans will agree on tax reform and fiscal stimulus.
What’s Next? We’ve said it before, we don’t know – no one knows. We’ve also said before, but it bears repeating: In the 70 + years since the end of WWII, the stock market has experienced 14 bear markets, an average of once every 5 years. These bear markets have seen stocks decline an average of 30%. Each of these bear markets have been followed by new stock market highs. We believe no action is required if you have a financial plan that includes a diversified portfolio based on your tolerance and capacity for risk.
Parting Thought: Legendary investor and Fidelity Magellan fund manager, Peter Lynch said: “Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves.”