Market Recap - An Interesting New Year Ahead of Us
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Market Recap – An Interesting New Year Ahead of Us

Market Digest – Week Ending 12/30/2016

U.S. stocks were down for the week, but the year finished with solid gains that caught many by surprise. The S&P 500 was up 12%. Other asset classes were generally positive, but the trend of U.S. stock leadership continued. International stocks returned 5%, U.S. bonds 2%, and international bonds just 1%. After three consecutive down years, gold and commodities rebounded, up 8% and 18% (as measured by DBC, the PowerShares DB Commodity Index Tracking ETF). Oil drove the commodities gain, up 45%.

Weekly Returns:
S&P 500: 2,239 (-1.1%)
FTSE All-World ex-US: (+0.5%)
US 10 Year Treasury Yield: 2.44% (-0.11%)
Gold: $1,152 (+1.8%)
USD/EUR: $1.052 (+0.7%)

Major Events:
• Tuesday – The Case-Shiller 20 City Index rose in October, bringing prices 5.1% higher than a year ago
• Tuesday – The Consumer Board’s Consumer Confidence measure rose, hitting the highest level since 2001
• Thursday – A late surge in holiday shopping led some consumer research firms to predict this will be the best holiday season for retailers in years
• Friday – Russian President Putin said he will not expel U.S. diplomats in response to the Obama administration’s decision to kick out dozens of alleged operatives; Trump tweeted praise for Putin

Our take:
Capital markets were kind to most investors in 2016, but many failed to keep up with standard index returns. A correction in the first quarter, Brexit in the second quarter and the U.S. election last month spooked many into selling at the wrong time. Looking ahead, 2017 should be an interesting new year. People say that every year, but heading into the ninth year of a U.S. stock bull market with an unpredictable new president and a less dovish Fed makes for a particularly interesting mix.

The first year of a president’s term tends to be more volatile in general because there is heightened uncertainty and more potential to pass meaningful legislation. Trump has bold views, no government track record to look back on, and a Republican Congress, so this volatility is magnified. Now, higher expected volatility doesn’t necessarily mean a bad market; it just means bigger moves are more likely, which includes possible upside potential.

Nearly everyone was happy with returns in U.S. stocks in 2016, but they were actually pretty average by historical standards. While not widely appreciated, these kind of “normal” years are not very common. Either a down year or a bigger up year happens more frequently. On a positive note, we still see more fear than greed, and don’t see many people predicting a big up year for 2017. The market likes to travel the road least expected, so another double-digit advance shouldn’t be ruled out.

U.S. stocks have dominated this bull market. International stocks are actually still well below pre-crisis levels, and bonds have been pretty flat the last couple of years. To us, this is another great reason to stay diversified. Asset class leadership has always been and should always be cyclical. What matters is not how you perform relative to the U.S. market in any one year, but over full market cycles. The best chance for success comes from a diversified strategy that is tailored for your goals and risk tolerance, and is rebalanced periodically.

Thanks for reading our weekly Market Digest this year and from all of us at Personal Capital, we wish you a happy and prosperous 2017.

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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Building my emergency fund
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Saving for a short-term goal, like a vacation or new car
Increasing my investment contributions
Maintaining status quo - I’ve got this under control

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