The Dow failed to reach 20,000 last week, but the blue-chip index still wrapped up its best year since 2013.
Despite falling about 1% last week, the Dow ended the year with a 13.4% price gain, closing at 19763 to lead the major averages. The S&P 500 gained 9.5% in price for the year while NASDAQ rose 7.5%, their best performances since 2014. The Dow was helped by a nearly 8% jump in the fourth quarter, easily beating the S&P’s 3.3% quarterly gain while NASDAQ added 1.3%. But those performances seriously lagged the gains in the small-cap sector. The Russell 2000 index rose 19% for the year after jumping 8.4% in Q4.
U.S. stocks easily outperformed their foreign counterparts, at least in local currency terms. In Europe, the broad-based Stoxx Europe 600 fell 1.2% for the year despite a 5.4% quarterly gain, but performances in individual euro zone countries were widely mixed. Germany’s DAX index, for example, rose nearly 7% on the year following a 9.2% jump in the fourth quarter. But Italy’s MIB index lost more than 10% last year despite a 17% rebound in Q4 as the country’s banking crisis deepened. In Asia, Japan’s Nikkei 225 recorded only a marginal gain for 2016 despite a 16% surge in the fourth quarter. But that was a lot better than the Shanghai composite, which lost more than 12% last year, never quite recovering from a 23% decline last January.
In the bond market, yields on long-term U.S. Treasury securities finished higher for the year while rates outside the U.S. finished sharply lower, albeit well above their lows of the year. Yields on Treasury bonds fell for the second week in a row last week, with the benchmark 10-year note closing the year at 2.44%, up 17 basis points from year-end 2015 and up more than 100 bps from its early July low. In Europe, the 10-year German bund ended the year at 0.21%, down 43 bps from the end of 2015, but up sharply from its all-time low of -0.17% reached back in early July. The Japanese 10-year bond closed in positive territory after spending most of the year well below zero but still 23 bps lower than where it began the year.
There was only a thin slate of U.S. economic reports released last week, but this week’s schedule picks up in earnest. The Conference Board’s consumer confidence index rose more than four points in December to 113.7, its highest level since August 2001 and well above forecasts, while November’s reading was revised upward by more than two points to 109.4. But pending sales of existing homes fell 2.5% in November as higher interest rates killed many deals. “The budget of many prospective buyers last month was dealt an abrupt hit by the quick ascension of rates immediately after the election,” said Lawrence Yun, chief economist for the National Association of Realtors. “Already faced with climbing home prices and minimal listings in the affordable price range, fewer home shoppers in most of the country were successfully able to sign a contract.” Customer Growth Partners raised its retail holiday shopping growth forecast to 4.9% from an initial estimate of 4.1%, making it the fastest growth rate since a 6.1% increase in 2005. There is a heavy slate of economic reports due this week following the Monday holiday. The Institute for Supply Management releases its two purchasing managers’ indexes, the Federal Reserve releases the minutes of its December 14 meeting, at which it raised interest rates by a quarter percentage point, and the December jobs report comes out on Friday.
Reports/dates/facts/links worth paying attention to over the next week:
1. January 2: Markets closed in observance of New Year’s Day.
2. January 3: Institute for Supply Management manufacturing composite index for December; construction spending for November.
3. January 4: Motor vehicle sales for December; ADP national employment report for December; minutes of the Federal Open Market Committee’s December 14 meeting are released.
4. January 5: Weekly unemployment claims; Institute for Supply Management non-manufacturing composite index for December.
5. January 6: Employment situation for December; factory orders for November.