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   Investment Thoughts - Capital Markets

Bad Things That Didn't Happen in 2017
A look at the false fears that werenít.

2017 was the year that:


President Trump didnít torpedo the US economy, trade, bull market or democracy.

Protectionism didnít strangle the global expansion or snowball into a trade war.

Euroskeptic populists didnít take over Europe.

Brexit talks and high inflation didnít tank the UK economy.

The British pound didnít keep plunging.

China didnít crash.

High valuations didnít bring stocks down.

The ECB tapered quantitative easing (QE) Ö and nothing happened.

The BoJ stealth-tapered QE Ö and nothing happened.

The Fed started shrinking its balance sheet Ö and nothing happened.

The Fed hiked rates three times Ö and nothing happened.

Big(ish) banks failed in Spain and Italy Ö and nothing happened.

Long-term interest rates didnít soar.

North Korea didnít nuke anyone.

All of these are things folks thought would roil stocks at some point this year. But none did. Either the thing everyone feared didnít happen, or it didóand markets didnít care. North Korea fired missiles over Japan, tested intercontinental weapons and detonated an H-bomb underground, but nuclear war didnít break out, and South Korean stocks were among the worldís best performing. The ECB and BoJís small QE tapers didnít kill off economic growth. UK economic growth slowed early in the year, before inflation really got cooking, and accelerated in the autumn as the annual inflation rate hurtled toward 3%. Eurozone Financials outperformed the MSCI World Index despite the failures of Monte Paschi di Siena in Italy and Banco Popular in Spain.[i]

Markets are efficient. They price in all widely known information long before most humans are able to think through everything and develop a rational view of the future. When stocks rise despite widely held fears, it doesnít mean markets are wrong. Rather, we think it is a strong indication the market has weighed all possible outcomes and decided the likeliest result is things going better than most fear. This is why stocks have a long, long history of rising through conflict, natural disasters, terrorist strikes and other frightening or dreary developments.

Keep this in mind for 2018. Most outlets are already trotting out the obligatory list of things that could cause a big downturn this year. Among the highlights: Fed tightening, rising inflation, bitcoin crashing, US midterm elections, North Korea (again), high valuations (again), protectionism (again) and a strong dollar whacking Emerging Markets. None of these fears are new. We have already seen stocks overcome themósome more than once during this bull market. They donít appear any likelier to cause actual problems this time around. None have surprise power, scope or inherent negative impact.

False fears are good for one thing: They are bullish. Specifically, they show markets arenít done climbing up the proverbial ďwall of worryĒ that looms in every bull. As long as worries remain, it shows some skepticism lingers in the marketplace, preventing investors from becoming euphoric. Usually, at a peak, folks are out of things to worry aboutóeverything is beautiful and nothing can end the party. That mindset isnít here yet, which is one reason we think this bull market has room to run.


[i] Source: FactSet, as of 12/28/2017. MSCI World Index and MSCI EMU Financials Index returns in USD with net dividends, 12/31/2016 Ė 12/27/2017.


Source: Fisher Investments

Fisher Investments MarketMinder, 12/28/2017-Editorial Staff

30.12.2017


Themes

Asia

Bonds

Bubbles and Crashes

Business Cycles
Central Banks

China

Commodities
Contrarian

Corporates

Creative Destruction
Credit Crunch

Currencies

Current Account

Deflation
Depression

Equity
Europe
Financial Crisis
Fiscal Policy

Germany

Gloom and Doom
Gold

Government Debt

Historical Patterns

Household Debt
Inflation

Interest Rates

Japan

Market Timing

Misperceptions

Monetary Policy
Oil
Panics
Permabears
PIIGS
Predictions

Productivity
Real Estate

Seasonality

Sovereign Bonds
Systemic Risk

Switzerland

Tail Risk

Technology

Tipping Point
Trade Balance

U.S.A.
Uncertainty

Valuations

Yield