The Final Trading Day of 2017

As expected, today’s holiday-shortened trading session featured low volumes and limited market movements.  All three major US stock indices edged 0.1%-0.2% lower, while Treasurys experienced a modest rally.  Yields/swap rates declined 1-3bps across the curve, with the 10-year note yield poised to finish the year near 2.41%.  The US dollar finished down 0.3% against major currencies to its lowest levels in the past three months.  In commodities, crude oil traded almost 1% higher as WTI crude futures crossed over $60/barrel. 
 
As we say goodbye to the financial markets for 2017, below is a brief look at a few of the highlights in US financial markets over the past year…

 

Stock Market Surges to Record Highs

Whether because of the “Trump Bump” or despite it, equity investors had a lot to cheer about this year.  Fueled by consistently strong corporate earnings, and in some part by prospects of Republican lawmakers’ sweeping tax overhaul, corporate equity prices soared throughout the year, with major US stock indices posting their biggest annual gains since 2013, despite surprisingly subdued volatility.  The S&P 500 (+20%), DJIA (+26%) and the tech-heavy Nasdaq (+30%) posted dozens of new record highs over the course of 2017, with each experiencing only one down month during the year.

 

 

Flattening of the Treasury Yield Curve

While the Fed opted to make three ¼ point hikes to its benchmark borrowing rate during 2017, investors remained conservative in their views of long-term economic growth and the prospects for inflation in the US (holding down yields on the back end of the curve).  As portrayed in the Bloomberg chart below, the spread between 2- and 10-year Treasury yields touched its lowest level in the past ten years (~50bps).

 

 

US Dollar Struggles

Uncertainty over inflation and the implementation of pro-growth policies drove the US dollar to its worst annual performance since 2003.  The greenback is set to post a near 10% decline on the year, after beginning 2017 at its highest level in more than 14 years against major currencies. 

 

 

Crude Oil Finishes Strong After a Volatile Year

Vacillating concerns over a global supply glut prompted crude oil futures to fluctuate widely throughout the course of the year.  The expansion of US production served as one of the biggest factors that weighed on prices, but the extension of a supply-cutting agreement between OPEC and its allies more than offset the negative sentiment.  WTI crude oil futures finished more than 10% higher for 2017.

 

 

Bitcoin and Other Crypto Currencies Became the Latest Market Focal Point

Blockchain technology has gained the title of trendiest trade of 2017, with daily (extremely volatile) volumes in the cryptocurrency markets now exceeding those of the New York Stock Exchange ($50 billion).  Whether the price of Bitcoin could touch $100,000 or $0 next is still very much debated.  There are plenty that see it as the latest version of tulip-mania, while many other just as learned and reasonable people see it as a game-changing, fundamental storage of value that will do nothing but grind higher in value.  Time will tell.

 

 

A very Happy New Year to all!