2017: THE YEAR IN REVIEW Every January, it’s customary to look back at the previous year. What were the highlights? What were the “lowlights”? What were the events we’ll always remember? Most importantly, what did we learn?
Rather than write a long recap of the entire year, let’s first look at this chart:
Donald Trump is sworn in as president.
Up 1.79% Up 3.72%
North Korea fires a ballistic missile over Japan.
The U.K. starts negotiations over leaving the European Union (Brexit).
A massive ransomware cyberattack strikes computers around the world.
Up 1.16% Up 1.93% Up 0.05%
More tension builds as North Korea fires its first intercontinental ballistic missile.
Hurricane Harvey strikes, the costliest natural disaster in U.S. history.
Hurricane Irma hits, one of the strongest hurricanes ever recorded. Hurricane Maria follows soon after. Equifax announces a massive data breach. In politics, Republicans fail to repeal Obamacare.
Fifty-eight people are killed in the deadliest mass shooting in U.S. history. In Europe, Catalonia declares independence from Spain.
Republicans in Congress pass the Tax Cuts and Jobs Act, the most significant tax reform in over 30 years.
Obviously, this is hardly a full summary of everything that happened last year. And it doesn’t even mention any terrorist attacks or the ongoing investigations into different government officials.
It also doesn’t mention the tidal wave of sexual harassment allegations that swept through Hollywood, the opioid epidemic, or any of a dozen other stories that dominated the news.
But let’s look closely at what it does mention. On the chart, you’ll see the following:
• • •
These were all major developments, many of them affecting hundreds of countries and millions of people. Of course, some items weren’t necessarily bad, but each was significant in its own way.
And month after month, the markets kept chugging up the hill. In fact, the S&P 500 rose over 19% for the year.²
WHAT CANWE LEARN FROM THIS? Politically, culturally, meteorologically, 2017 was a volatile year — but not for the markets. As a result, 2017 taught us a valuable lesson about investing: MAJOR NEWS STORIES DON’T DRIVE THE MARKETS. Or at least, they’re far from the only thing that drives the markets. Time and again, pundits predicted the latest natural disaster, a story about gridlock in Washington, or a geopolitical incident would bring the markets down. In 2017, that never really happened. That’s not to say such events don’t ever affect the markets; it just means they often don’t have the impact one would expect. Previously, I commented on the historical lack of correlation between major events and market performance. Take the Cuban Missile Crisis. The world has probably never been closer to nuclear war than during those nerve-wracking 13 days in 1962, yet during that time, the Dow only fell 1.2% . By the end of the year, the Dow was up 10%.³
More recently, look at Brexit.When the UK voted to leave the European Union, it took most analysts by surprise, and many predicted it would lead to a major drop in the markets. At first, it did. The vote took place on a Thursday. The next day, the Dow fell over 600 points, and then another 250 points the Monday after. ⁴
But less than a month later, the Dow climbed to a new record high.
In 2017, the same thing occurred, with major events failing to impact the markets to any great degree.
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