Market Update

With the sudden market reset over the past several weeks, let's review where things stand year-to-date.
Looking broadly at markets, one can clearly see the shift in "risk appetite" away from areas deemed to be too risky in a future Trump Administration (foreign stocks and core bonds), and into U.S. stocks.

Since the election, stocks have continued up while bonds have fell off a bit, but the performance of both has been mixed. To illustrate my point, here is a summary of where the major indexes stand currently, year-to-date (through last Friday) and where they stood at the end of October (green means higher than October, red means lower).

Comparing the two gives you an idea of how things have shifted:

U.S. Stocks (current year-to-date)
S&P 500 – up 9.5%
Dow Jones – up 12.9%
NASDAQ – up 6.2%
Russell 2000 – up 17.3%

Foreign Stocks
MSCI EAFE – down 1.8%
MSCI EM – up 10%

Bonds
U.S. Aggregate – up 2.4%
U.S. Corporates – up 5.3%
Municipals – down 1.8%
High Yield – up 15.2%

U.S. Stocks (year-to-date through October...)
S&P 500 – up 5.9%
Dow Jones – up 6.4%
NASDAQ – up 3.6%
Russell 2000 – up 6.2%

Foreign Stocks
MSCI EAFE – down 0.4%
MSCI EM – up 14%

Bonds
U.S. Aggregate – up 5%
U.S. Corporates – up 6.1%
Municipals – up 3.1%
High Yield – up 6.9%

You'll notice that U.S stocks are up since the election, while foreign stocks are down. Emerging Markets had been doing quite well this year heading into November, but quickly fell prey to the "Trump Trade".
Core U.S. bonds are down since October, but High Yield, or what used to be known as "junk bonds", shot up. This too is based on election results, but also extends to other issues. Investors are trying to weigh potential outcomes from a Trump Administration's assumed fiscal spending and associated inflation expectations, contrasted with the Federal Reserve being set to raise interest rates again.

Economic and market forecasts for 2017 and beyond have started to come out post-election and they're largely positive. Vanguard, for example, expects the Fed to raise rates to 1% during 2017 (up from 0.5% currently), core bonds like the 10-yr Treasury to fall a bit further (as interest rates rise), and for global stocks to average 5-7% over the next several years. "Guarded but not bearish" is how they characterized their outlook. Other analysts are also cautiously optimistic. This is generally good news. But if recent history has taught us anything, it's that expectations can quickly be confounded.

What does all this mean for your portfolio? The fast reset of the major indexes shows that being well diversified matters, and that investors can get left behind when making bets on winners and losers. Markets shift around over time, so it's best to be widely diversified and adjust proportions accordingly. That way you are more likely to enjoy as much growth potential as possible, and hopefully avoid feeling like the music stopped and you can't find a chair.

Have questions? Ask me. I can help.