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Nasdaq Dorsey Wright Monthly Update .

The analyst team at Nasdaq Dorsey Wright sums up 2017 market and the strength of equities both domestic and international.

Nasdaq Dorsey Wright Monthly Update

And just like that, we have another year in the books! Without question, 2017 was a strong year for equities, both U.S. and International alike. The S&P 500 Index (SPX) finished the year in positive territory with a gain of 19.42% while the Dow Jones Industrial Average (DJIA) finished up 25.08%. The iShares MSCI EAFE ETF (EFA) and the iShares MSCI Emerging Markets ETF (EEM) both finished up as well, with a gain of 21.79% and 34.59%, respectively. Today we want to take a moment to review the past year, and then provide an update on where we stand as we make our way further into the New Year. For more market updates as we begin 2018, be sure to keep up with our Daily Equity and Market Report, a research report the DWA analysts publish on a daily basis. We also encourage you to watch our weekly videos and tune into our weekly podcasts, which can be found in the iTunes store, as well as on the “Media & Education” tab of the inside of the Dorsey Wright website.

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Each of the major Domestic Equity market indexes that we follow finished the year in double digit territory, with the Nasdaq Composite (NASD) coming out on top with a gain of 28.24%, thanks in large part to the year-long rally we saw from the Technology sector. The Technology sector held on to the #1 rank in the DALI U.S. sector rankings for the majority of the year, and did so by a wide margin. In fact, Technology never had less than 200 buy signals in its favor all year. That said, the Technology sector was not the only winner in 2017. We also witnessed a bounce from the Retail sector in the latter part of the year, which helped move Consumer Cyclicals up into the top half of the DALI rankings, and interestingly enough, the best performing DWA sector stock model was the DWA Gaming Sector Portfolio, which was up 92.68%, significantly outperforming the S&P 500 Index.

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On the International front, Emerging Markets led the way in terms of performance however Developed Markets were not far behind. Overall, International Equities was the most-improved asset class as it gained a total of 91 buy signals in 2017 and moved up to the 2nd ranked position in early 2017 for the first time since mid-2015. We saw significant strength out of countries/regions such as China, India, Chile and Asia Pacific.

Fixed Income

From a return standpoint, 2017 was a relatively average year for U.S. Fixed Income – on a total return basis, the Bloomberg Barclays US Aggregate Bond Index returned 3.54%, 48 basis points lower than its 10-year annualized return of 4.02%. What was not normal however, was the movement in U.S. Treasury yields, as the yield curve flattened significantly during the year; and the spreads between the 10-year and two-year and the 30-year and five-year Treasuries finished 2017 at 51 and 41 basis points, respectively, close to the narrowest these spreads have been in last decade. Within U.S. Fixed Income, Convertible Bonds were among the best performing assets as the strong U.S. equity market drove up prices in these instruments – the SPDR Barclays Convertible Bond ETF (CWB) returned 15.69% during 2017 on a total return basis. Meanwhile, driven by a weakening dollar – the NYCE U.S. Dollar Index (DX/Y) was down 9.85% for the year, and U.S. investors were rewarded for exposure to foreign bonds. The SPDR Bloomberg Barclays International Treasury Bond ETF (BWX) had a total return of 9.93% on the year.

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Commodities

Although Commodities ranked in the bottom half of the DALI rankings all year, Commodities experienced the most improvement over Q4 as a result of the rally in the Energy sector. Precious Metals, specifically Gold, also had a strong year as the SPDR Gold Trust (GLD) posted a gain in excess of 12%. Even with the brief improvement throughout the month of May, Agriculture remained a laggard throughout 2017 and finished out the year with only 14 buy signals in its favor, trailing #4 ranked Precious Metals by over 30 signals.

Currencies

Currencies ranked dead last in 6th place in the DALI asset class rankings all year and never was able to garner more than 71 buy signals in its favor. In mid-2017, the U.S. Dollar fell to the 3rd ranked Currency group where it finished up the year with only 12 signals in its favor. In fact, 2017 was the weakest year for the U.S. Dollar since 2003.

Looking forward to 2018, we continue to overweight our portfolios toward both U.S. and International equities, as both asset classes maintain the top two rankings in DALI. It is worth mentioning that International Equities is only trailing Domestic Equities by a margin of 26 signals. Both the Technology and Financial sectors continue to exhibit leadership and we will continue to monitor the Consumer Cyclical sector to see if it can continue its recent improvement. Moving forward, we will underweight or avoid exposure to the lagging areas of the market, such as Currencies and Commodities.


*Unless otherwise stated, the performance numbers above do not include dividends or all transaction costs. Investors cannot invest directly in an index. Indexes do not have fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.


DWA provides strategies, models, or indexes for the investment product(s) discussed above and receives licensing fees from the product sponsors.

Neither the information within this email, nor any opinion expressed, shall constitute an offer to sell or a solicitation or an offer to buy any securities, commodities or exchange traded products. This article does not purport to be complete description of the securities or commodities, markets or developments to which reference is made.

The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Relative Strength is a measure of price momentum based on historical price activity. Relative Strength is not predictive and there is no assurance that forecasts based on relative strength can be relied upon.

Unless otherwise stated, the returns do not include dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance, hypothetical or actual, does not guarantee future results. In all securities trading there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives.

The performance numbers above are price returns, not inclusive of dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

Dorsey Wright receives index licensing fees based on assets for the PowerShares DWA ETFs listed above.

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