AN EPIC YEAR FOR THE STOCK MARKETS
According to the S&P Dow Jones Indices, the value of publicly-listed companies on the global stock markets grew by $12.4 trillion in 2017, including dividends. The U.S. stock market, as usual, was in the center stage as investors wagered on strong economic growth, solid corporate earnings and optimism that President Trump would ease on regulations. Towards year-end, a big corporate tax cut boosted the market with the signing of the tax bill into law.
The Dow Jones Industrial Average surged by 25.08%, the S&P 500 shot up by 19.42% but the tech-heavy Nasdaq Composite index outshined both with a stunning 28.24% gain. All three main benchmarks finished lower to end the year without the Santa rally.
Even with a remarkable showing in 2017, a number of stock market indices around the world outperformed the U.S. by a wide margin. Following are the top 4 winners:
Argentina’s Mervel index is up 77% this year and hit a record high in the final week of 2017.
The main Turkish index rallied by 48% with the implementation of temporary tax cuts and a loan guarantee program for small businesses
The Nigerian All-Share Index has closed the gap with the records high of 2008 with a 42% surge in 2017.
Hong Kong’s Hang Seng charged ahead by 36%, overshadowing China's major mainland indexes in Shanghai and Shenzhen.
While major stock markets posted sizable gains, the stock market of Qatar tumbled by 18%. The neighboring Gulf nations - Saudi Arabia, Bahrain and the United Arab Emirates – decided to cut diplomatic ties and transport links Qatar in June. The nations alleged that Qatar is funding terrorism which the latter is denying.
Efforts and conditions were set but none were successful to restore the broken ties. The Middle East dispute is doing vast damage to Qatar’s economy and the besieged Gulf state is struggling to get by with workaround strategies and different trade routes.
A WINNING HOLIDAY SEASON
The official sales figures won’t be available until January 2018 but the U.S. holiday shopping season this year is set to break new grounds. No holiday season is more critical for retailers than 2017. Many are determined to stay remain afloat in a market increasingly dominated by Amazon.com Inc. (AMZN).
Based on the data released by MasterCard Spending Pulse for the period November 1 to December 24, U.S. holiday sales increased by 4.9%, setting a new record for dollars spent. The numbers are the largest since 2011 on a year-over-year basis.
The holiday shopping season accounts for up to 40% of annual sales. For this year, online and in-store spending posted record-breaking sales of more than $800 billion. Online shopping was boosted by a late season rally that saw a large gain of 18.1% compared to 2016.
> Electronics and appliances 7.5%, the highest growth in 10 years
- The story is different per category but it was a winning season for retail generally:
> Home furniture and furnishings 5.7%, as did home improvement
> Specialty apparel and department stores saw moderate gains, impressive enough given recent store closings
> Jewelry grew 5.9%, driven by last minute sales
The main contributing factor for the increased sales is the strong U.S. economy and the retailers’ heavy early-season promotions which paid off. Significant gains were already apparent during the first three weeks of November. Also, evolving consumer preferences continue to play out in the aisles and online sites of retailers across the U.S.
Business is Booming for Logistics Companies
Logistics companies like FedEx and United Parcel are once again in their busiest months of the year and they’re doing a pretty good job. The holiday season is usually a make or break affair even for shipping giants. Failure to make timely deliveries could tarnish their reputations and hurt investor sentiment too.
However, both companies are able to manage and efficiently handle the holiday surge with minimal delays resulting in another record season. According to the National Retail Federation, the heavy rise in shipments, in and around the holiday season, are primarily attributable to the rise in e-commerce globally.
Specifically, e-commerce was expected to grow by around 8-12% in 2017, which is more than double the overall increase for all retail. This staggering growth rate is also expected to grow at a similar rate over the next few years.
S&P 500 TOP PERFORMERS
S&P 500 – 2,673.61 as of 12/29/2017 (+19.42% YTD) Last week's close: 2,683.34
Among the stocks that figured prominently in the top ten list of the best-performing stocks of 2017 on the S&P 500 index are a mix of sectors - tech, healthcare, consumer discretionary, industrials and utilities.
The Top 5 Best Performers
1. NRG Energy Inc. (NRG) +132% Utilities
At the year-end closing of the books, NRG Energy Inc. came out as the as the best performing on the index. It was a close run-off with second-ranked Align Technology Inc., the maker of Invisalign dental braces. Shares of NRG finished 1.9% higher on Friday while ALGN fell by 1.8%.
The one-week gain of more than 43% in July of NRG shares solidified its top rank position by year’s end. The company made headway after shifting its focus away from renewables and instead selling power plants in an effort to become leaner. As for Align Technology, the company’s shares have consistently beaten Wall Street earnings and revenue estimates. It is tops in the medical specialties industry.
1. Align Technology Inc. (ALGN) +131% Healthcare
2. Vertex Pharmaceuticals Inc. (VRTX) +103% Healthcare
3. Wynn Resorts Ltd. (WYNN) +95% Consumer Discretionary
4. Boeing Co. (BA) +89% Industrials
Three stocks from the Tech Sector made it to the top ten – #6 Micron Technology Inc. (MU), #8 PayPal Holdings Inc. (PYPL), #9 Nvidia Corp. (NVDA). Two from the consumer discretionary sector completes the cast - #7 D. R. Horton Inc. (DHI) and #10 Pulte Group Inc. (PHM).
Boeing is ranked no. 5 on the S&P 500 index but is the Dow Jones’ top performing stock in 2017.
The Top 5 Worst Performers
- 1. Baker Hughes (BHGE) -51% Energy
- 2. Range Resources Corp. (RRC) -50% Energy
- 3. Under Armour Inc. (UAA), (UA) -50%/-47% Consumer Discretionary
- 4. Scana Corp. (SCG) -46% Utilities
- 5. Envision Healthcare Corp. (EVHC) -45% Healthcare
In addition to BHGE and RRC, the stock of Chesapeake Energy Corp. (CHK) is the third energy stock (#8) that belongs to the top ten worst performers. CHK is down -44%. What caused Baker Hughes fall this year was when it was acquired by General Electric Co. The shareholders of the old Baker Hughes Inc. received a special cash dividend of $17.50 a share on July 6.
The tech-heavy Nasdaq Composite Index outpaced the Dow Jones and S&P 500 in 2017. Tech stocks contributed significantly to the banner year of the U.S. stock market. Investors also rushed into growth-oriented companies belonging to the index.
Nasdaq Composite Index – 6,903.39 as of 12/29/2017
(+28.24% YTD) Last week’s close: 6,959.96
The Nasdaq Composite established numerous records, hitting two 1,000-point milestones during the year, passing the 6,000 mark in April and briefly crossing 7,000 in early December. It was the third quickest 1,000-point climb in the index’s history.
But in ranking the top performing stock for the year, one unfamiliar name stood out. Nasdaq’s biggest winner in 2017 is Gravity Co. Ltd. (GRVY). GRVY is a South Korean videogame maker. Their series of game launches in key markets catapulted the stock to No.1 and rose to nearly 796% on the year.
An interesting sidebar is a stock that rode on the cryptocurrency craze. Riot Blockchain Inc. (RIOT) was formerly Bioptix which is an “animal health care” company. When it changed its name and shifted to a blockchain business, Riot jumped and gained 640% for the year.
There are plenty of conventional names that delivered handsome returns, mostly from the smaller Nasdaq-100 Index. Align Technology Inc. (ALGN), no. 2 in the S&P 500, is the biggest gainer and one of the top four stocks that rose by more than 100% on the year.
1. Align Technology Inc. 131%
2. Take-Two Interactive Software Inc. 123%
3. Vertex Pharmaceuticals Inc. 103%
4. MercadoLibre Inc. 102%
Dish Network Corp. (DISH) ended up as the worst tech performer in Nasdaq-100. The company lost 400,000 net subscribers in its latest quarter compared to the previous year although about 145,000 customers had their services “proactively paused” due to Hurricane Maria. DISH can be a future acquisition target for some because of the valuable spectrum it owns. However, no potential buyers have emerged so far.
DOW JONES' WINNERS
The Dow Jones Industrial Average closed out 2017 on a very high note. It’s actually the blue-chip index’s best year since 2013. The top five were big winners in the broader S&P 500 index too.
Dow Jones Industrial Average – 24,719.22 as of 12/29/2017 (+25.08% YTD) Last week’s close: 24,754.06
Shares of Boeing Co. (BA) soared 89.43% and emerged as the overall Dow leader in 2017. The aerospace and defense sector heated up because of the year-long strong demand in the defense and commercial sectors. The production rates of its 787 Dreamliner and narrow-body 737Boeing were ramped up due to the increasing demand.
In addition, the company found alternative ways to cut production costs, thereby increasing its free cash flow. Investors welcomed with glee Boeing’s announcement of an $18 billion repurchase program and a 20% dividend hike to $1.71.
BA climbed consistently through the year, piling up a series of records and buoyed by better-than-expected earnings. The commercial airliner and defense contractor’s second quarter earnings report was impressive that it sent the stock up almost 10% in a single session.
Boeing is not part of Silicon Valley yet it overshadowed the FAANG stocks: Facebook Inc., Apple Inc., Amazon.com Inc., Netflix Inc. and Google parent Alphabet Inc., which have all made a lot of buzz this year.
Caterpillar Inc. (CAT) came in distant second and climbed 71% in 2017. The construction and mining equipment maker was the best performer in the past six months to edge past Boeing for a period, 58.8% to 48.6%. There was a rebound in commodities that boosted demand for heavy mining equipment. Housing markets in the U.S. and China also remained strong.
Credit card provider Visa (V) ended the year at 3rd place, climbing 46.45%. The company rode on strong consumer sentiment. More jobs were created and wages increased. The payment stocks of all stripes have been big winners over the last 12 months.Tech-giant Apple Inc. (AAPL) slid to the number four spot, gaining 46.2% in 2017.The highly anticipated iPhone X was released in November. It was the biggest redesign of the iPhone in three years. The cheaper iPhone 8 was also launched.
Wal-Mart (WMT) managed to land at the top five despite the Amazon.com Inc. (AMZN) juggernaut. WMT rose 43.1% during the year. The discounter icon improved its e-commerce offerings to compete head on with AMZN. Wal-Mart purchased Jet.com and Shoebuy.com in 2016, vintage millennial brand ModCloth and high-end outdoor gear site Moosejaw in 2017. The company acquired Parcel, a same-day grocery and meal kit delivery service, in October.
THE WEEK AHEAD
The year 2017 is the first time since 2012 that international stock exchanges outperformed the U.S. market. However, U.S. stocks still posted gains exceeding 20%, including dividends. The Dow Jones Industrial Average rose more than 5,000 points, posting its largest ever point gain in a calendar year.
Stock markets soared around the world due to improved global economic growth and strong investor confidence. Interest rates generally remained low, helping keep markets unruffled despite ongoing worries that political uncertainty or unexpected events would cause disruptions.
For 2018, investors should set realistic expectations. The strong economic growth and rising corporate earnings fed the bull market but the pace might slow down after five years of above-average U.S. stock market returns. Investors should be more prudent and prepare in case there is a return of higher volatility plus the slow rising U.S. interest rates.
Have a Prosperous 2018!