A look at the fourth quarter of 2017.

Executive Summary:

• Pervasive positive performance. 2017 was a year when taking risk paid off handsomely. Improving economic activity sparked strong returns in various asset classes across the globe.
• Synchronized global growth continues. The economic cycle and the stock market are inextricably linked and so we tend to discuss them together. Bear markets and recessions tend to coincide with one another. For now, there is little sign of recession.
• Beauty is in the eye of the beholder. After a long bull run, a persistent question centers around whether stocks are expensive. Low interest rates and inflation provide a positive backdrop for stocks, but valuations are elevated tempering future return expectations.
• Risks, more of the same. The primary risk may be that the economy is too strong and ultimately overheats. Unemployment is low but wage growth and inflation have remained benign. Historically there has been a lag from when employment improves to when wage growth and inflation start to pick up.
• Outlook for 2018. Naturally investors are wondering how much room is left for the bull market to run. Economic fundamentals are improving, and thus we are hard pressed to be anything but constructive on the outlook for equities with international stocks poised to have another good year.

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