January 11, 2017 | Investment Review

Investment Review - January 2017

  1. The stock market set a new record high again in 2016 with the S&P 500 hitting 2,271 and the Dow closely approaching 20,000 in late December. The S&P 500 has now posted a positive return in each of the last eight years, with an average annualized total return of 15% since 2009.

  2. Post-election enthusiasm around the U.S. economy produced a very strong finish for small- and mid-caps. Small-caps led all other asset classes with a better than 20% gain, which is very impressive considering small-caps started off the year by declining into bear market territory in February.

  3. 2016 was positive for stock and bond investors as the S&P 500 was up 12% including dividends, and the Barclays U.S. Aggregate Bond Index had a total return just shy of 2.5%. With some uncertainty ahead of us, we expect a return to normal volatility in 2017, with at least one 10% stock market correction as well as several smaller pullbacks. But that doesn’t mean markets are bound to be lower a year from now. Over the last 20 years, stocks have regularly fallen up to 14% within the year, but have posted gains of about 10% on average, by year-end. This provides an opportunity for investors to buy stocks when their prices dip throughout the year.

  4. Looking ahead: Earnings growth looks good and should get support from energy sector profits in a more healthy oil price environment. Valuations are fairly full for U.S. stocks, leading to an expectation for modest earnings growth as the leading driver of equity market gains. In the fixed income market, we expect the Fed to hike rates a few times this year, but in a measured fashion, which should set the stage for increasing longer-term rates over time.

key investment statistics

Sources: Bloomberg LLC, U.S. Commerce Department, Bureau of Labor Statistics, Dow Jones Inc., MarketWatchStandard & Poors, Federal Reserve Bank

* This commentary reflects the opinions of Welch & Forbes based on information that we believe to be reliable. It is intended for informational purposes only, and not to suggest any specific performance or results, nor should it be considered investment, financial, tax or other professional advice. It is not an offer or solicitation.For a printer-friendly copy of our Economic Outlook and Investment Review for your viewing convenience, CLICK HERE.If you would like to receive your copy of the Economic Outlook and Investment Review monthly in the mail, call Ed Sullivan, Vice President, at 617-557-9800, or email him at