Another year in return heaven - December 17, 2017

Another year in return heaven

At the beginning of the year (and all the way through it), many believed that markets are overvalued, and interest rates are too low. There were several other fears among investors, too. In 2017, there were elections in Germany and France, the two biggest economies of the EU, where radical parties showed a newly found strength. The ongoing Brexit negotiations and Donald Trump’s presidency also added to the fears of what 2017 might bring.

All this did not matter. Analysts believed that the European market may outperform itself, but after all these months, the US market still holds itself strong: measuring in local currency, American stock indices beat their European counterparts. The main reason behind this might be the strengthening of the Euro. But still, the already expensive instruments (like stocks) became even more expensive. According to some valuation model of S&P 500, for example, were not higher since 1929 and 1999-2000.

Growth comparison in percent of S&P 500, Nasdaq 100 and DAX in 2017

This year brought an important change, though. Monetary policies started to change slowly around the world this year. Generally, the FED dictates rate changes among Western central banks, but in 2017, it was a bit different. This year, the FED hiked rates three times, but only Canada and the UK followed, while their other Western counterparts did not. Even if it is still obvious that low interest rates may have several risks and could create investment bubbles. Some countries are still holding to their loose monetary policies, even though global growth is at a 5-year high and conjunction is at a 10-year high.

Interest rate comparison of select central banks

2017 was also an important year for cryptocurrencies as more and more authorities are trying to regulate this volatile market. Bitcoin, for example, may start to become the part of mainstream and well-regulated markets.

Although bull market is now starting its 9th year and stock prices are still shining brightly, low interest rates cannot be held for long. Every instrument is expensive because of low interest rates, so when rates rise, bubbles will deflate. This change may not be fast, says the company, but it may have a global influence.

An edited version of this post appeared on Yahoo Finance, MarketWatch and Atlanta Business Chronicle. Find the articles under our Press page.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.