U.S. stocks ended lower on the last trading day and week of the year but lots of investors were probably sorry to see 2017 come to an end, as equities had their best performance since 2013.
The Dow finished less than 300 points shy of 25000 but still ended the year with a price gain of more than 25%. The S&P 500 gained more than 19%. But the big winner was NASDAQ, which jumped more than 28% in price; in 2016, the tech-heavy index was the worst performer of the three main indexes. Small cap stocks lagged the big-cap indexes but still had respectable returns, with the Russell 2000 gaining more than 13% on the year; in 2016, small-cap stocks easily outperformed big caps. The catalyst for the advances was an improving economy and the potential of further improvement from President Trump’s big tax reform legislation cutting corporate income taxes.
Foreign stocks also did well, especially in Asia. One of the best performing markets was Hong Kong, where the Hang Seng index gained 36% on the year. By comparison, mainland Chinese stocks were laggards, as the Shanghai composite index rose a relatively weak 6.6% after losing ground in the fourth quarter. Indian stocks also did very well, rising nearly 28%. Japanese stocks rose 19%, with most of the gains coming since September. In Europe, the Stoxx Europe 600 rose a relatively ho-hum 7.7% in local currency terms, but those returns were boosted for American investors as the dollar sank against the euro, making it cheaper to buy euro-denominated goods, including stocks. The euro ended the year at $1.20, up 15 cents against the dollar for the year.
In the Treasury bond market, short-term interest rates were sharply higher than where they began the year, the yield on the 30-year bond was sharply lower, while the benchmark 10-year note was little changed. On the short end, the yield on the three-month bill closed the year at 1.39%, its highest level since before the financial crisis and up 88 basis points from the beginning of the year. The two-year note was likewise higher, up 69 bps on the year to a closing level of 1.88%. But at the other end of the curve, the yield on the 30-year bond ended the year at 2.74%, 33 bps below where it started 2017. The 10-year note, however, closed at 2.41%, down just three bps from its 2017 start. In between, it hit its 2017 high of 2.63% in mid-March and its low of 2.04% shortly after Labor Day. In commodities, U.S. crude oil ended the year just above $60 a barrel, its highest level since July of 2015 and up 35% since late June.
U.S. economic reports released last week centered on housing and consumer confidence. The National Association of Realtors’ pending home sales index was basically unchanged in November, rising 0.2% after climbing 3.5% the prior month. The index is up 0.8% compared to a year earlier. The S&P CoreLogic Case-Shiller national home price index rose 0.7% in October and 6.4% year-on-year; rising home prices are what’s keeping home sales somewhat muffled. The Conference Board’s consumer confidence index, which has been soaring of late, climbing to 17-year highs in each of the past two months, settled down in December, falling 6.5 points to end the year at a still robust 122.1. That follows the path of the University of Michigan’s consumer sentiment index, released the prior week, which ended the year at 95.9, down about a point from the prior month.
Reports/dates/facts/links worth paying attention to over the next week:
1. January 1: Financial markets closed for New Year’s Day.
2. January 3: Motor vehicle sales for December; Institute for Supply Management purchasing managers’ manufacturing index for December; construction spending for December; the minutes of the Federal Open Market Committee’s December 12-13 meeting are released at 2:00 P.M.
3. January 4: Weekly unemployment claims; ADP national employment report for December.
4. January 5: Employment situation for December; ISM nonmanufacturing index for December; factory orders for November.