Weekly Market Commentary February 26, 2018

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Global stocks put together a second straight positive week. The S&P 500 gained 0.6%, and the MSCI ACWI rose 0.3%. The Bloomberg BarCap Aggregate Bond Index was unchanged.

Market Commentary

On the surface, 2018 looks like a much different year from 2017. The sharp downturn in late January and early February was far more challenging than anything seen last year. However, 2017 and 2018 also have many similarities.

  • Stocks are having a very good year. The S&P 500 is up 2.8% this year. If every two months produced that rate of return, the S&P would gain around 18%, not far from the 19.4% the S&P gained last year.
  • S. and international stocks are performing at similar levels. In 2017, international stock markets, as represented by the MSCI ACWI ex USA rose 24.1%, about 5% better than the S&P 500. This year, the S&P 500 is ahead as international markets are up 1.4%.
  • Large growth stocks continue to dominate, and small value continues to lag. In 2017, large growth stocks, based on the Morningstar U.S. Large Growth Index, climbed more than 31.2%, while small value lagged, rising only 8.4%. 2018 has seen more of the same: Large growth is up 8.4%, and small value has returned -2.7%.
  • Technology was the top performing sector in 2017 and is back on top again. While the market was up significantly last year, cell phone data plans pushed telecommunications stocks lower. Even with higher volatility, technology stocks are up 7.6% this year and telecommunications are down 6.2%. Consumer staples, energy, and utilities stocks, which generally performed poorly last year, are lagging the market this year, too.

As investors enter the last few days of February, markets are at an interesting juncture. Investors seem focused on the market’s direction as they wrestle with the potential loss of momentum from the correction, but the rest of the 2017 playbook seems intact. U.S. and global stocks are producing attractive returns, and growth and technology stocks are leading the way.

We expect 2018 to veer from the 2017 playbook as the year goes on and encourage investors not to extrapolate current trends too far. Higher economic growth should expand the rally and reward a broader set of companies. Valuations will constrain some of these companies, and overall volatility is expected to remain higher.

Key points for the week

  • Stocks rose for the second week in a row.
  • Relative performance trend remains intact despite the recent decline.
  • Markets are at an interesting juncture.

Fun story of the week

How to Make a Clock Run for 10,000 Years

The man who single-handedly altered the way consumers shop is taking an enduring approach to his next project, a giant clock that will last 10,000 years. Amazon CEO, Jeff Bezos, is creating the clock to demonstrate the power of long-term thinking. He has compared his project to building the Egyptian pyramids and has started a waiting list for visitors to view the clock when it is complete. Bezos is successful partly due to his long-term thinking and serves as a reminder to keep focused on our long-term objectives, particularly after this recent period of volatile markets.



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