Market predictions are abundant, no matter the outlook and no matter how wrong they ultimately prove to be. Things can change quickly. Remember back to the 13% decline in the S&P 500 in February, 2016? At the time, it seemed to be the first step in a broad and steep decline.
Five months later, the market was at new all-time highs and 2016 concluded as a double-digit year for many major market benchmarks. We are again waiting for a correction, but it sure hasn’t come yet in 2017. The following table, courtesy of the RiverFront Investment Group, shows the returns for the major assets classes as of the end of March.
The quarter wrapped up a great 12 months for stocks and high yield bonds, both in absolute terms and relative to investment grade bonds and cash. International and Emerging Markets have shown sustained positive momentum and are still way below their long term price trend. As a result, despite political uncertainty, these are the asset classes that are most likely to outperform in 2017.
Fixed Income Market
The Fixed Income market has been quite stable after a spike in interest rates at the end of 2016. Bonds continue to struggle against rising interest rates, which drive bond prices down. If you are a fixed income investor, expect your returns to be the yield you receive – there is not likely to be much upside otherwise.
As far as the domestic market goes, if you are concerned about a sharp drop, consider whether you want to take some cash out now, and hold it for reinvestment when you get the opportunity. You may miss out on some additional gains, but you are eliminating risk.