Equity prices around the world started strongly in 2017, continuing their rise that began after the 2016 US election. Foreign markets outperformed the US, rebuilding on the theme that started early last year but was briefly sidetracked after the election. Small US stocks, which had skyrocketed at the end of 2016, struggled to keep pace to start the year. The Dow Jones Industrial Average passed 20,000 (and 21,000) for the first time.
Despite what seems like an endless news reel of disturbing reports about the US Government, terrorism, and geopolitical events around the world, stocks were less volatile in the first quarter than in all but one quarter of the history of a commonly known “fear gauge” the CBOE Volatility Index. The average daily change in the Dow Jones Industrial Average was its lowest since 1965.
Many reports are surfacing about projected economic strength in the US and around the world. Company profits are expected to rise this year, and that expectation is likely the catalyst behind higher stock prices. Inflation targets set by central banks around the world are being met, reinforcing the strategic moves made since the great recession began almost 10 years ago.
The Federal Reserve raised short-term interest rates again this quarter, as expected. Due to the expectation, the actual rise had little effect on asset prices. Longer term rates remain stable, albeit low by historical standards. Borrowers continue to take advantage of low rates; investment grade US companies borrowed more money in the first quarter of 2017 than any other quarter in history.
It is not easy to tune out the flow of constant information, especially about finance and investments. Acknowledgement that the future is unpredictable and prices reflect all current knowledge is a sound foundation for disciplined investing.