A strong fourth quarter gave stocks their best year since 2013.  Broad equity indices hit multiple new highs as volatility remained historically low through year end.  Feeding off the momentum that began in late 2016, the S&P 500 finished the 2017 calendar year without a single down month for the first time since 1970.

Bond returns were generally positive for the year as longer-term interest rates ended the year somewhat lower compared to the beginning of 2017.  Shorter-term rates moved noticeably higher in the fourth quarter, most likely in anticipation of additional rate hikes from the Federal Reserve in 2018.

Stocks added impressively to their gains of the first half, marking the eighth consecutive quarter of positive returns for most broad based indices. Much of what transpired in the markets fit the “more of the same” narrative that has held course for the year. Bond returns were positive as interest rates ended the quarter little changed.

It was a good quarter for both stocks and bonds, adding to the solid returns of the first quarter. Numerous equity indices ended the quarter at or near record highs, in spite of a relatively flat month of June. Stocks, broadly speaking, have now posted seven consecutive quarters of positive returns.

A Strong Start:

The momentum from last quarter carried into the New Year as the broad based equity averages completed their sixth straight quarter of positive returns. Investors’ attention was pulled between growing uncertainty coming out of Washington and more reassuring data about global economic growth. The quarter ended with confidence still intact, but the strength behind this year’s gains reflected a more circumspect view of the cyclical reflation trade that initially drove stocks higher.

Game Changer:

Nobody saw this coming, but in the collective wisdom and unemotional ways of the market, it didn’t take long to comprehend that this was monumental. The combination of a highly improbable election outcome with such wide-ranging policy consequences was, and is still, startling.  We’re sure there are parallels somewhere in modern history, but they elude us at the moment.

Currently in the midst of its eighth year, this bull market is the second longest on record. Conventional wisdom would suggest this puts us in the late stages of a traditional business cycle. The current cycle, however, has not followed the traditional pattern. It was...

Confidence Rising:

Stocks closed higher in the third quarter amidst a relatively benign backdrop of news and events. In the context of stagnant growth and negative earnings trends, advances like this would seem to be driven more by sentiment and positioning than a material improvement in economic and corporate fundamentals.

Cliffhanger:

Stocks completed a near 6% round trip in a rousing final week of the second quarter, leaving most of the broad equity averages at slightly positive levels for the three months.  The U.K. vote to leave the European Union clearly caught investors leaning the wrong way, triggering panic across global markets.  The abrupt recovery that followed was almost equally surprising.

Something for Everyone:

Stocks declined over 10% in the quarter.  They also gained more than 10%.  Oil dropped 30% and gained almost 50% in the quarter.  The Fed advised to expect four more rate hikes this year and then took that off the table.  China both devalued its currency and strengthened its currency in the quarter.  In the end, the broad stock market eked out a small gain, leaving investors relieved, notwithstanding symptoms of whiplash.