The biggest driver of this outperformance was the dominant year for technology, which finished up 37%. Of the best performers, growth-oriented sectors accounted for four of the top five. Value sectors, on the other hand, accounted for four of the five worst performing sectors. The most surprising of these was energy. Despite oil rebounding to normal levels and the energy sector having the biggest year-over-year growth in overall earnings contributions since the financial sector rebound post-Great Recession, 2017 returns for the sector were negative. In fact, 2017 marked the first time since 2002 that crude oil was up, while the energy sector was down.
So, what does all this mean for the markets? Well, that’s anyone’s guess. With U.S. markets at all-time highs and valuations as stretched as they’ve ever been, one would expect a market pullback. However, continuously climbing sentiment, market-favorable fiscal policy, and the potential for infrastructure spending could allow the market’s historic rise to continue. Or, the long-anticipated correction could finally surface.
Additionally, the efficacy of the cryptoasset space cannot be ignored. Developments in innovation, regulation, and governance could give way to substantial staying power for the asset. On the other hand, however, such an unprecedented run-up (not seen since the silver rally of the late 1970s) highlights the speculative craze surrounding the space and could mark the biggest bubble markets have ever seen.
So much uncertainty highlights the importance of maintaining a disciplined and diversified approach. It goes without saying that it’s very likely many, if not most, of the cryptocurrencies investors are raving about today will not be around in the future. Further, markets are cyclical, and at some point a correction is a virtual certainty. For these reasons, CLS employs a balanced and Risk Budgeted approach to managing portfolios and will continue to hunt for cheap assets to add value for our clients.
Mark Matthews is an Investment Research Analyst at CLS Investments, a participant in the ETF Strategist Channel.
1106-CLS-1/12/2018