Looking Back & Moving Forward to a New Year

2017 proved to be a very good year for the stock market. Individual investor returns were significantly impacted by various asset allocation weightings, with those that were overweight in large cap growth and non-US stocks outperforming by large measure those who were overweight small cap and large cap value stocks. Overall, the S&P 500 enjoyed a 19.4% increase in value for the year while the broadest US market, the Russell 3000, grew 18.9%. As a demonstration of the disparity between growth and value stocks, the Russell 3000 growth index grew 27.8% while the Russell 3000 value index grew 10.5%. This year’s results were the opposite of last year’s when value stocks significantly outperformed growth stocks. Of the major US indices, the NASDAQ enjoyed the best performance (up 28.2%) while the DJIA jumped 25.1%. The primary factor driving the surge in stock prices was earnings expansion that exceeded analysts’ expectations. For two consecutive quarters, GDP growth exceeded 3% for the first time in a decade. Reduction in burdensome regulations coupled with increasing corporate and privately held business owner optimism also contributed to economic growth. The high employment rate, an expanding global economy, resurgence in several European economies, and historically low, but rising, interest rates were all contributors to the rise in stock values.

Moving forward, we remain bullish, but more cautiously so, on stocks and are even more cautious on bonds. The Federal Reserve Board has already indicated that we should expect interest rates to move higher, suggesting there will likely be three rate increases during 2018. We believe that all the increases will be 0.25% each. With inflation continuing at an historically low rate, rapid rate increases are less likely. Both employee participation rates and wage growth need to be more robust for the Fed to raise rates more aggressively. The net effect on expected 2018 interest rate increases will be negative on bond prices and, up to this point, neutral on stock prices.

We expect US corporate earnings growth to continue to expand on the strength of reduced corporate taxes, expansion of capital expenditures, merger & acquisition activity, strong consumer confidence, GDP growth continuing at the 3% rate, and continued expansion of the global economy. Potential headwinds would include greater than anticipated geo-political problems in the Mideast, Europe, and North Korea. In addition, should wage growth start to spike in 2018, we may see the Fed become more aggressive in moving interest rates higher which would have the tendency to slow stock market growth and have even more downward pressure on bonds.

On the Mustard Seed Advisors news front, 2017 was a year of expansion and change for the team. We are thankful for the introductions and referrals from our clients, and we now serve over 350 families as a team. We are grateful for our team family and our clients! Team member updates include:

• Stephen Hilton was added in May 2017 to fill the shoes of Alison Vecchiarelli who was promoted twice in 2016 and is now working as our branch office’s Branch Operations Manager. We are proud of Alison’s achievements first with our team and now with our branch. And we are pleased to have Stephen join the team. He has been in the business for well over 10 years, mostly in stock research and marketing. Stephen will be doing similar work for our team, inclusive of addressing insurance needs for our clients (life, annuity and long-term care insurance).
• Kimberly continues to serve our clients from an operations perspective, and, with the technology improvements that were implemented in 2017, with more on the horizon in 2018, many of the processes over which she is responsible have become more streamlined and efficient.
• We’ve recently embarked on the next step of our long-term succession plan. Rachel Nohlgren has started participating as equity partner in Mustard Seed Advisors. Also in 2017, Rachel was tapped to sit on Raymond James’ Women’s Advisory Council, a group of advisors from around the country who aim to lead change and pave the way for next generation of women advisors at Raymond James.
• Bob and Chris Hilton relocated to a condo in Tierra Verde in June of 2017 (just in time for hurricane season). They are thoroughly enjoying sunset views, proximity to the beach, and their walks on Shell Island. Bob was awarded Chairman’s Council at Raymond James this year, a reflection of his vision and success as our team leader. Bob is often asked to speak with his peers regarding the successes and challenges of leading a team and implementing a succession plan that is focused on clients.
• Finally, Joe Blanton has recently let us know of his retirement near the end of September 2018. Joe has been a fixture in the investment business for well over 50 years and, after a long stint as the head of all Eagle Asset Management’s fixed income programs, co-founded the Mustard Seed Advisor team with Bob Hilton in October 2007. We will miss Joe a great deal. We are sure he will enjoy well-deserved time with Nancy and his family, and wherever their travels may take them. There will undoubtedly be retirement celebrations for Joe closer to the time, to which we’ll keep you posted.

Please don’t hesitate to call or send us a note with any questions you might have about the markets, US, and global economies.

All the best to everyone in 2018!

Views expressed are not necessarily those of Raymond James and are subject to change without notice. Information provided is general in nature, and is not a complete statement of all information necessary for making an investment decision, and is not a recommendation or a solicitation to buy or sell any security. Past performance is not indicative of future results. There is no assurance these trends will continue or that forecasts mentioned will occur. Investing always involves risk and you may incur a profit or loss. No investment strategy can guarantee success. Gross Domestic Product (GDP) is the annual market value of all goods and services produced domestically by the US. There is an inverse relationship between interest rate movements and bond prices. Generally, when interest rates rise, bond prices fall and when interest rates fall, bond prices rise. The S&P 500 is an unmanaged index of 500 widely held stocks. The Russell 3000 index is an unmanaged index that measures the performance of the 3000 largest US companies based on total market capitalization. The NASDAQ Composite Index is an unmanaged index of all stocks traded on the NASDAQ over-the-counter market. The Dow Jones Industrial Average is an unmanaged index of 30 widely held securities. Keep in mind that indexes are unmanaged and individuals cannot invest directly in any index. Index performance does not include transaction costs or other fees, which will affect the actual investment performance. Individual investor results will vary.