The close of 2017 slipped quietly into the record books last week concluding that, by any measure, it was a remarkable year. In abbreviated trading last week, we witnessed some modest profit taking in technology and bank shares, countered by slight gains in energy and utility shares as arctic temperatures descended across the northern tier of the continental U.S. The major U.S. indices posted fractional declines last week, with the Standard & Poor’s 500®, 400 and 600 Indices slipping 0.41%, 0.24% and 0.63%, respectively. In a marked contrast, fund flows into emerging markets ramped up to almost record levels. Net purchases of emerging market exchange traded funds reached $2.46 billion for the week, bringing the 2017 total to $46.4 billion. This, in turn, drove the MSCI® Emerging Market Index up 2.12% for the week, closing out the year with a gain of 34.35%. Surprisingly, what was anticipated to be one of the big stories for 2017 turned out to be something of a non-event. As we entered 2017, the prospect of consecutive interest rate hikes by the Federal Reserve had both equity and bond investors on edge. And to the Fed’s credit, there was an impact on short-term interest rates. As an example, the overnight rate on LIBOR rose from 0.69544% to 1.4375% last year, a 106% increase. But as we look at the yield curve, the increase not only fades, but from the ten-year maturity mark on, rates fell. The yield on the 30-year Treasury bond started 2017 at 3.0651%, falling to 2.7399% at the close of trading on Friday. Judging from the year-end interest rate comparison shown in the illustration, there appears to be little pressure to force U.S. rates higher, as we are still one of the highest yielding developed markets. Industrial commodity prices enjoyed substantial recovery last year, thanks in large part to China’s ongoing recovery from the mild manufacturing recession of 2016. Crude oil finished a turbulent year on a high note, as West Texas Intermediate (WTI) closed over $60 per barrel for the first time since July 21, 2015. Sadly, this is due in part to two devastating tropical storms in the U.S. together with unprecedented compliance with production cuts by OPEC member states.
Source: All statistics herein obtained from Bloomberg.
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