We, at Beacon Financial Strategies, believe strongly that the most effective investment strategy is one that is developed within the context of a financial plan and customized to meet your personal risk profile and return requirements. Click here to learn more about our investment philosophy.
Research has proven time and again that it is impossible to consistently time the financial markets, by exiting before trouble arises and re-entering just before the “all clear” signal. Nevertheless, we believe it is important to stay abreast (if you like) of recent market history because understanding shorter term market movements, can give you the confidence to stick with your long term investment plan.
2016 Index Data
The following table should give you an idea of how the financial markets have performed over the last 12 months. You will note that US stocks performed especially well, while the performance of most bonds and international stocks of developed economies were muted.
US Stock Market (Russell 3000 Index), International Developed Stocks (MSCI World ex USA Index [net div.]), Emerging Markets (MSCI Emerging Markets Index ), Global Real Estate (S&P Global REIT Index), US Bond Market (Bloomberg Barclays US Aggregate Bond Index), and Global Bond ex US Market (Citi WGBI ex USA 1−30 Years [Hedged to USD]).
How Did the Financial Headlines Impact Stocks?
The following chart shows the movement of the MSCI All Country World Index (an index that measures stock performance globally) over the course of the last twelve months. You will note that there are also a number of the major news headlines that may have impacted stock performance.
Domestic Stock Performance
In terms of the performance of stocks, the US equity markets have provided positive performance in both the short and long term.
You will note that there was wide disparity between those stocks that are considered “Growth” (normally stocks in sectors like technology, healthcare, etc.) and those that are classified as “Value” stocks (normally stocks in sectors like financials, energy, etc.). Find below, performance data for various categories of US Stocks:
Domestic Stock Index Data: Large Cap (S&P 500 Index), Large Cap Value (Russell 1000 Value Index), Large Cap Growth (Russell 1000 Growth Index), Small Cap (Russell 2000 Index), Small Cap Value (Russell 2000 Value Index), and Small Cap Growth (Russell 2000 Growth Index)
International Stock Performance
In US dollar terms, developed markets outside the US lagged both the US equity market and emerging markets indices for the year.
International Return Data: Large Cap (MSCI World ex USA Index), Small Cap (MSCI World ex USA Small Cap Index), Value (MSCI World ex USA Value Index), and Growth (MSCI World ex USA Growth).
Fixed Income (Bond) Performance
Interest rates increased in the fourth quarter. The yield on the 5-year Treasury note rose 79 basis points (bps), ending at 1.93%. The 10-year T-note yield climbed 85 bps to 2.45%. The 30-year Treasury bond yield added 74 bps to close at 3.06%.
In 2016, the short end of the yield curve saw the greatest rate increases. The 1-year T-bill gained 20 bps to 0.85%, while the 2-year T-note finished at 1.20% after an increase of 14 bps for the year.
In terms of total returns, short-term corporate bonds declined 0.18% during the quarter but gained 2.36% for the year. Intermediate corporates fell 1.84% during the quarter but rose 4.04% in 2016.
Short-term municipal bonds declined 1.07% for the quarter but increased 0.07% for the year. Intermediate-term municipal bonds fell 3.74% for the quarter and 0.45% for the year. Revenue bonds outperformed general obligation bonds for the year.