We found 2017 to be a surprisingly positive year overall for many stock markets, both here in the US and around the world. And this, in spite of an impressive amount of doubt stemming from the US elections last November. What we suggested in our November 2016 newsletter remains true:
“Changes in the political climate affect the markets in systematic ways – some industries tend to do better during Republican administrations, others during Democratic ones.” “…with the Election finally behind us, we believe it is time to focus on the opportunities ahead.” And that is exactly what we did!
The opportunities in 2017 proved to be largely in Large Cap Growth, and that is where we positioned a majority of our strategies for the year. This played out well for many of our investors. For example, in V32 – our indicator turned investment strategy, we were 100% invested in a Large Cap Growth Index fund for the entire year.
Other models, such as our 403b accounts and some of our core equity strategies, also had some of this exposure.
The chart below compares: S&P 500 Growth (red line), S&P 5001 Index (blue line), S&P 500 Value (green line), S&P Mid Cap Index (magenta) and the Russell 2000 Index (cyan). As you can see, Large Cap Growth (red line) outpaced other US market segments, including the S&P 500 Index, pretty significantly by year-end.
We have been pleased to see how the integration of the V3 indicator into our thinking has helped us to navigate interesting markets with success. Both in how it helped us to minimize downside in the first quarter of 2016, as well as how it kept us in the market for the entirety of 2017.
Overall, there is some evidence that this more stable stock market (as well as the rise of Bitcoin) are drawing in the average Joe Investor. While it is always great to see more enthusiasm for investing, we believe that can often signal the beginning of the end of a good run. In our observation, most market bubbles and market tops occur when the large majority of investors believe “anyone can do it.” In recent history, we’ve seen that cycle in Tech stocks, Real Estate, Gold, and now Bitcoin. Will the market’s top be next quarter or two years from now? We believe that depends on the fervor of those who missed out.
As always, we’re keeping a close eye on major trends and the overall strength of the market. For now, we’re enjoying the ride! But we’re always ready for defensive action when it needs to be taken.
Happy Holidays from all of us here at Shadowridge!! We’re looking forward to continuing the journey with you into 2018 and beyond!