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Wealth & Pension Services Group
William Kring, CFP, AIF - Chief Investment Officer

Q4|2017 Economic Commentary

The Quarter In Brief

The final quarter of 2017 was a great one for stocks: the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all posted 3-month gains of better than 6%. Landmark federal tax reforms were approved and signed into law. Bitcoin was welcomed to two major futures exchanges, and it surged and plunged crazily. Oil and gold prices rose. Home buying accelerated, even though mortgages grew more expensive and listings remained thin. Domestic indicators showed continued strength in consumer spending and hiring as well as a pickup in economic growth. The Federal Reserve made another interest rate hike and started to reduce its balance sheet, while the European Central Bank prepared to wind down its long-running stimulus. All in all, it was an eventful and positive quarter for investors.1

Domestic Economic Health 

Without question, the fourth quarter’s major story was the passage of the Tax Cuts & Jobs Act. The new law created night-and-day changes in the Internal Revenue Code, nearly all effective January 1. Its most dramatic changes were arguably the ones benefiting businesses: it slashed the corporate tax rate to 21% and let the majority of pass-through companies deduct the first 20% of income. The legislation also took the individual estate tax exemption north to $11.2 million, put the standard deduction at $12,000, and did away with dozens of longstanding deductions, plus the personal exemption. In 2019, it removes the individual mandate for health insurance. Most of the above changes are set to expire after 2025, barring renewal in Congress.2

Consumer spending improved in the quarter. The Department of Commerce recorded a (revised) gain of 0.2% for October and a 0.6% rise in November. Retail sales were up 0.4% in October and 0.8% a month later. 3,4

Those numbers reflect consumer optimism, affirmed by fall readings for the key U.S. consumer confidence indices. The University of Michigan’s monthly sentiment gauge actually declined during the quarter from 100.7 to 98.5 to 95.9, but these numbers are still well above historical averages. As for the Conference Board’s index, it hit a remarkably high peak of 128.6 in November and ended Q4 up at 122.1. 3,5

October and November were the best months for job creation since the middle of 2016, with the Labor Department recording net payroll growth of 244,000 hires in the former month and 228,000 in the latter. The main jobless rate reached 4.1% during November, while the rate for both unemployment and underemployment (the U-6) ticked up to 8.0%.6,8 

The Institute for Supply Management’s twin purchasing manager indices fell a bit from their lofty Q3 heights, but their fall readings were still superb. ISM’s services PMI went from 60.1 in October to 57.4 in November. Its factory PMI was at 58.7 for October and 58.2 a month later. Hard good orders, as measured by the federal government, fell 0.4% in the tenth month of the year, but rose 1.3% in the eleventh.3

Consumer and wholesale prices increased 0.4% in November. For the Producer Price Index, the advance replicated that of October; the Consumer Price Index was up only 0.1% the prior month. The Federal Reserve’s core PCE price index advanced just 0.2% for October and 0.1% for November.3,7

Speaking of the central bank, it started unwinding its vast securities portfolio and hiked the federal funds rate another quarter point in December, resulting in a new target range of 1.25%-1.5%. Among the economic indicators that likely fostered that decision was the final federal government assessment of Q3 growth: a strong 3.2%. The Fed also raised its projection of 2018 GDP to 2.5% from its previous forecast of 2.1% and its latest dot-plot indicated three rate hikes for the new year.3,8  

Global Economic Health

While Spain grappled with the Catalonia region’s desire for independence and the United Kingdom contended with European Union demands involving its Brexit, there was much good news concerning the overall E.U. economy. The jobless rate across its 28 member countries continued to descend, falling to 7.4% in October. Inflation, barely above 1.0% at the end of 2016, increased to 1.8% in November. The European Central Bank kept interest rates steady in the quarter and announced it would buy fewer bonds per month; its monetary stimulus is expected to last through Q3 2018. In December, the ECB projected 2.3% growth for the E.U. economy in 2018.9,10

Economic data streams from the Asia-Pacific region offered plenty of positive news this fall. While the Caixin/Markit manufacturing PMI for China reached a 5-month low of 50.8 in November, manufacturing PMIs in Asia’s leading electronics producers were up. Japan’s factory PMI hit a peak unseen since 2014 in November, while manufacturing PMIs in South Korea and Taiwan respectively displayed their best readings since mid-2013 and mid-2011. South Korea’s Bank of Korea raised interest rates in Q4, becoming the first major central bank in Asia to hike in three years.11

Looking Back at the Numbers...













S&P 500




Russ 1000 Value




Russ 2000




Sources:,, – 12/29/171,20,21,22   Indices are unmanaged, do not incur fees or expenses, and

cannot be invested into directly.  These returns do not include dividends.

Looking Forward

The Dow settled at record highs 70 times last year; the S&P 500, 62 times. The gains in the fourth quarter made 2017 the best year for stocks since 2013. The Russell 2000 rose 13.14% for the year. The year-end settlements: Dow, 24,719.22; Nasdaq, 6,903.39; S&P, 2,673.61; Russell, 1,535.51; VIX, 11.04.18,19  

Wall Street seems primed for a bullish first quarter, charging out of the gate. Institutional investors are hopeful that 2018 may surprise to the upside, just as 2017 did. The economy’s 2-3% growth will probably continue in the near term, and corporate earnings should get a boost from the tax reforms in the months ahead. All that said, warnings continue to sound that the market is overpriced; the S&P 500 is now trading at about 18x forward earnings. The exuberance around equities does not always feel rational. (For more on our current thinking about the market, please see 2017 Was A Great Year Can. We Have Another For 2018? from January 2nd).   Nearly two years have passed without a correction in the S&P, and the index had no more than a 2% downturn during all of 2017. Look at this first quarter optimistically, but be aware that the market is still susceptible to left hooks and gut punches from geopolitical events and the gradual erosion of confidence that can sometimes emerge to accompany an aging business cycle. Hopefully, bulls will not slow to a trot as 2018 proceeds.18

William Kring, CFP®, AIF®
Chief Investment Officer


This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. The information herein has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Investments will fluctuate and when redeemed may be worth more or less than when originally invested. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. Indices do not incur management fees, costs and expenses, and cannot be invested into directly. All economic and performance data is historical and not indicative of future results. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is a market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. The Standard & Poor's 500 (S&P 500) is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. NYSE Group, Inc. (NYSE:NYX) operates two securities exchanges: the New York Stock Exchange (the “NYSE”) and NYSE Arca (formerly known as the Archipelago Exchange, or ArcaEx®, and the Pacific Exchange). NYSE Group is a leading provider of securities listing, trading and market data products and services. The New York Mercantile Exchange, Inc. (NYMEX) is the world's largest physical commodity futures exchange and the preeminent trading forum for energy and precious metals, with trading conducted through two divisions – the NYMEX Division, home to the energy, platinum, and palladium markets, and the COMEX Division, on which all other metals trade. The MSCI Emerging Markets Index is a float-adjusted market capitalization index consisting of indices in more than 25 emerging economies. The MSCI World Index is a free-float weighted equity index that includes developed world markets, and does not include emerging markets. Nikkei 225 (Ticker: ^N225) is a stock market index for the Tokyo Stock Exchange (TSE).  The Nikkei average is the most watched index of Asian stocks. The All Ordinaries (XAO) is considered a total market barometer for the Australian stock market and contains the 500 largest ASX-listed companies by way of market capitalization. BSE Sensex or Bombay Stock Exchange Sensitivity Index is a value-weighted index composed of 30 stocks that started January 1, 1986. The Hang Seng Index is a free float-adjusted market capitalization-weighted stock market index that is the main indicator of the overall market performance in Hong Kong. The FTSE 100 Index is a share index of the 100 most highly capitalized companies listed on the London Stock Exchange. The S&P/TSX Composite Index is an index of the stock (equity) prices of the largest companies on the Toronto Stock Exchange (TSX) as measured by market capitalization. The CAC-40 Index is a narrow-based, modified capitalization-weighted index of 40 companies listed on the Paris Bourse. The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The DAX 30 is a Blue Chip stock market index consisting of the 30 major German companies trading on the Frankfurt Stock Exchange. The Russell 2000 Index is a small-cap stock market index of the bottom 2,000 stocks in the Russell 3000 Index. The CBOE Volatility Index® is a key measure of market expectations of near-term volatility conveyed by S&P 500 stock index option prices. Additional risks are associated with international investing, such as currency fluctuations, political and economic instability and differences in accounting standards. This material represents an assessment of the market environment at a specific point in time and is not intended to be a forecast of future events, or a guarantee of future results. MarketingPro, Inc. is not affiliated with any person or firm that may be providing this information to you. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional.


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