So far, 2017 has been a strong year for global stock markets. Although we can’t know what the new year will bring, here are five reasons for investors to be thankful this holiday season:
1. Stocks have been up every month.
The global stock market, as represented by the MSCI AC World Index, is on track to post a gain in every single month this year, which would be a first in the 30-year history of the index, according to Schwab’s Chief Global Investment Strategist Jeffrey Kleintop.
“Global stocks may be on their way to posting a gain every month in 2017,” Jeffrey says. “For November, stocks are up month-to-date and history shows that December has been the most consistently positive month of the year, although of course history is no guarantee of future performance.”
2. Every major economy has grown.
Every one of the world’s 45 largest economies tracked by the OECD (Organization for Economic Cooperation and Development) has grown this year, and the OECD has forecast another year of growth for major global economies in 2018.¹
“It has been a decade since we last saw annual growth for every major economy,” Kleintop says. “From 2008 through 2016 many of the world’s largest economies experienced recessions, acting as a drag on corporate earnings growth and stock market performance.”
3. Earnings have hit a new all-time high.
The broadest economic growth in a decade has lifted earnings per share for global companies above $30.² Stock prices have closely tracked the rise in earnings.³
4. Stocks have been less vulnerable to certain risks.
Stronger growth has made stocks less vulnerable so far to risks from politics, central bank actions or geopolitical conflict.
“Stock prices have tracked earnings growth closely over the past year, even through developments like the Brexit vote, U.S. election, shifts in central bank policies and rising tensions with North Korea,” Jeffrey says. “This has even been true where geopolitical threats are greatest. South Korea’s stock market, as measured by the KOSPI index, has tracked earnings growth consistently despite the threat posed by North Korea’s nuclear weapons program.” 4
5. The global economy may accelerate in 2018.
Leading economic indicators, including the yield curve, have not been pointing to signs that growth is coming to an end, Jeffrey says. In fact, after cutting 2017 and 2018 forecasts for GDP growth for the past two years, economists recently have been raising these forecasts for global economic growth.5
One reason economists have been raising their forecasts is this year’s economic growth, which has consistently exceeded their expectations for the first time in many years. The global Citigroup Economic Surprise Index, which is above zero when economic data is exceeding economists’ forecasts, has been positive on average so far this year. It was negative for each of the past six years, when actual data fell short of estimates.
What investors should know
Investors shouldn’t expect every month ahead to continue to be good for stocks. There are potential risks out there, including relatively high stock valuations and growing investor complacency. But for now, investors can take holiday cheer in the best global growth in years, which hopefully will continue into the new year.
¹ OECD Interim Economic Outlook, September 20, 2017.
² Based on MSCI AC World Index analyst consensus EPS estimate for the next 12 months.
³ Based on MSCI AC World Index.
4 The Korea Composite Stock Price Index (KOSPI) had posted a year-to-date return of 25.05% as of 11/17/2017, according to Bloomberg data.
5 Based on 2018 World GDP Median Economist Forecast, Bloomberg data as of 10/11/2017.
What You Can Do Next
- Changing economic conditions can affect how each component of your portfolio performs. It’s impossible to predict which one will be the top performer in any given year—that’s why diversification is so important. Want to talk about your portfolio? Call our investment professionals at 800-355-2162.
- Watch Schwab experts discuss other market and economic topics in the Schwab Market Snapshot.