Stock markets delivered a fifth straight annual positive return in 2007, but increased volatility and a negative fourth quarter depressed already low market sentiment. For the year, the MSCI World Index returned +9.0%.
Volatility is the norm for stock markets, which regularly slip, slide, or charge ahead. 2004, 2005, and parts of 2006 were uncharacteristically docile, but 2007 saw an end to the calm.
For most investors, 2007 was difficult to navigate. Aside from taking wild bets in narrow categories and getting lucky, success required making a few big decisions correctly to beat equity benchmarks and deliver nicely positive absolute returns.
Sectors positioned to benefit from high global demand for resources and economic growth performed well. Sector weakness was isolated to a few areas, as seven out of ten sectors within the MSCI World Index posted double-digit returns globally. Financials and Consumer Discretionary stocks were particularly weak as grim headlines about subprime, credit crunches, and ailing homebuilders dominated the news.
Geographically, 2007 was again a year where overall foreign stocks outperformed while US stocks had tepid but positive returns.
*Written as of February 06, 2008. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.