Happy New Year! Thank you for a great year and your continued business.
All three major indexes closed at or near their all-time highs. The S&P 500 ended the year up approximately 22%, led by the technology sector. It was a stellar year for investments and overall capital growth. The markets experienced very little volatility as the VIX (Volatility Index) is near historic lows and the biggest single-day drop on the S&P 500 was less than 2%.
We believe the market appreciation was the result of many factors, primarily increased consumer spending and low interest rates. The job market strengthened as unemployment continued to fall and ended the year near historic lows. Increasingly positive consumer sentiment and glimmers of wage inflation helped to push consumer spending higher. Wage inflation in the labor market grew slightly, keeping overall inflation in check.
Generally, consumers remained selective with their spending by only buying products believed to be worth the cost. This trend persisted through the fourth quarter, with a sharp division between the successful retailers and retailers struggling for sales. In addition, two major hurricanes and the California fires will extend spending, as rebuilding continues and homes are reestablished.
Corporate earnings strengthened as the current administration pushed to lower corporate taxes, roll back regulation, and create more pro-business policies. With the passage of the Tax Reform Bill, we believe repatriation of domestic earnings from foreign markets will be a primary market driver in 2018. We expect that repatriated dollars will lead to more mergers and acquisitions among corporations.
A growing middle class in China, positive economic activity, and strengthening expansion pushed international equities higher. We believe foreign economies will continue to recover, providing an opportunity for further growth. In addition, oil recently closed above $60/barrel. We believe the energy sector will continue to benefit from global growth and be a favorable area for new investments in 2018.
We also expect the financial sector to be favorable in 2018. As the Federal Reserve gradually raises interest rates over the next couple years, financial institutions will be a direct beneficiary.
Although we expect the markets to push gradually higher in 2018, we believe increased volatility and normal pullback to be expected. A few areas we believe could negatively impact the markets are heightened geopolitical issues, concerns around our current administration, and a drastic uptick in inflation or interest rates.
As always, we continue to monitor the market environment and your portfolio. Please feel free to give us a call with any questions.