What a year 2017 was! Chock-full of political drama, natural disasters, terrorist attacks & shootings, and sexual harassment reckoning for many powerful men (and at least one woman). Exhibit 1 shows the weekly % changes in the S&P (green and red bars) and the level of the index (black line). The annotations are the major stories of the year that [could have] affected the markets. It’s not meant to be a comprehensive list, just my personal observations.
Some other news themes for the year included culture wars, opioid epidemic, solar eclipse, travel ban, climate change (fake of course), navy ship collisions, Iran, North Korea, Venezuela, Turkey, Russia, Yemen, Catalonia, etc. etc. etc.
Stories more directly affecting the markets included the new corporate tax rate of 21%, three rate increases by the Fed & selection of Powell as new chair, net neutrality and other regulation rollbacks, dollar weakness, bitcoin mania, electric & self-driving cars, hacking everywhere, Amazon buying Whole Foods, many crappy IPOs (and a few good ones), Fox-Disney merger, Uber management disarray, etc. etc. etc.
Exhibit 1 – 2017 S&P 500 Timeline
So how did the market react to all these events? With hardly a shrug! S&P 500 went up every single month (and 14 months in a row) and ended the year 21.8% higher. Surprisingly, that put it in only 67% percentile of annual returns since 1926, which means that about 1/3 of the time performance has been better than 22%! The biggest S&P pullback of 2017 was 2.8% in April, and another 2.2% in August. As you can see in the chart above, there were zero weeks when the market moved 2% up or down. For context, there were 10 such weeks in 2016, including a 6% drop and 4% rise. Volatility has been non-existent and paradoxically that’s making many people very nervous.
We’ll see what 2018 will bring us, but it’s unlikely to be boring.