Overview of the Global Financial Markets
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I'm Kevin Barr, Head of SEI's Investment Management Unit. Over the next few minutes I will provide an overview of the global financial markets and our perspective on them.
The fourth quarter of 2017 wrapped up a record year for U.S. stock markets. It was characterized by a continuation of low volatility, steadiliy rising equity markets and little sign of rising inflation pressures. Geopolitics fell to the wayside as the sychronized global economic expansion continued.
As the New Year approached, the old year ended on a high note with the S&P 500 Index up more than 6.5% for the quarter and nearly 22% for the year. While that was welcome news for U.S. investors, foreign markets had even better results over the course of the full year. The MSCI ACWI Index, a proxy for global equity markets, gained about 24% in 2017. Emerging markets led the charge, however, with full-year performance on the MSCI Emerging Markets Index topping 37%.
Fixed-income markets followed a pattern similar to that of equities. They were generally led by the most risk-oriented segments, and specifically by emerging-markets. Local-currency-denominated emerging-market debt was the top performer, propelled by a weaker U.S. dollar and stronger foreign currencies.
The yield on the ten-year U.S. Treasury, a benchmark for domestic bond markets, opened 2017 at 2.45% and closed the year little changed at 2.4%. As long-term rates posted a slight decline, short-term rates moved higher in concert with the Federal Reserve’s rate increases.
Looking ahead, we think global growth can remain vibrant enough. The major worries for investors come down to inflation, the Fed and stock market valuations. On the valuations, we believe the low level of bond yields and the strong trend in profits growth justify the prices.
With that in mind, we intend to stay the course until we see a significant deterioration in economic and financial fundamentals. While the current environment is certainly one to enjoy, it’s also the perfect time to prepare for the future. Just as trees don’t grow to the sky, stock prices won’t go up forever. The timing is questionable, but a pullback at some point is inevitable. Proper planning when times are good should position your portfolio to weather the tough periods.
On behalf of everyone at SEI, thank you, as always for your trust and confidence.
S&P 500 Index
The S&P 500 Index is an unmanaged, market-capitalization weighted index that consists of the 500 largest publicly traded U.S. companies and is considered representative of the broad U.S. stock market
MSCI ACWI Index
MSCI ACWI Index is a market capitalization weighted index composed of over 2,000 companies, and is representative of the market structure of 46 developed and emerging market countries in North and South America, Europe, Africa, and the Pacific Rim. The index is calculated with net dividends reinvested in U.S. dollars.
MSCI Emerging Markets Index
The MSCI Emerging Markets Index is a free-float-adjusted market-capitalization-weighted index designed to measure the performance of global emerging-market equities.
There are risks involved with investing, including loss of principal. International investments may involve risk of capital loss from unfavorable fluctuation in currency values, from differences in generally accepted accounting principles or from economic or political instability in other nations. Emerging markets involve heightened risks related to the same factors as well as increased volatility and lower trading volume. Diversification may not protect against market loss.
This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. This information should not be relied upon by the reader as research or investment advice and is intended for educational purposes only.
Index returns are for illustrative purposes only and do not represent actual fund performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index. Past performance does not guarantee future results.
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