Barry Ritholtz: Taking Stock of a Very Weird Year in Markets

Barry Ritholtz is Taking Stock of a Very Weird Year in Markets.

• Overseas Trounces U.S.: This was a notable performance metric. Although the Standard & Poor's 500 Index had a good year, up 21.7 percent, the rest of the world beat the U.S. Europe had an even better year, with a 27 percent gain, while the Pacific region advanced 28.9 percent and emerging markets surged 37.4 percent. Even Japan, mired in slow growth for ages, outperformed with a 24.3 percent gain. A global economic recovery and improving corporate profits worldwide deserve the credit, not deregulation or tax cuts in the U.S.

• Volatility: A favorite theme of ours reasserted itself last year: Political volatility doesn't equal stock-market volatility. Despite all of the political sturm und drang, be it North Korean missiles, health-care repeal drama, white nationalists is Charlottesville, Virginia, and too many other @realDonaldTrump tweets to keep up with, stock volatility was the lowest in a half-century. You have to go back to 1964 to find average daily change for the S&P 500 as low as it was in 2017. It wasn’t just the U.S.; the lack of connectivity between politics and equities in emerging markets saw those stocks ignore all manner of political crises as well.

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This would mean that investors are consistently confident. They are more so outside of the US.

This well be a delusion on the part of investors. They imagine themselves isolated from everything happening around the world. Maybe they are confident that governments will bail them out as governments did back in the Great Financial Crisis, and there would be no political ramifications for doing so.

When elites lose any connection to reality, we enter dangerous times.