While equities ended 2017 on a negative note, with a 118-point drop in the Dow on Friday, investors have nothing to feel sorry about. For the year, the S&P 500 finished with a 19.4% gain and the Dow Industrials and the NASDAQ ended 2017 with gains of 25% and 28%, respectively. Helping to lift markets is the accelerating business upturn, which features surveys confirming broad strength in housing (with increases in homebuilding, as well as in sales of new and existing homes), personal income, 3% GDP growth, consumer spending and confidence and a host of leading economic indicators.
In the last week of trading for the year, equities were fractionally negative as volume slowed in the holiday-shortened week. Making up for some lost ground were utility stocks, ahead by 0.4%. And energy shares moved higher with crude settling at $60.42/bbl. – a nearly $2 gain – and at its highest level for the year. Offsetting some of the winning sectors were technology stocks, shedding 1.2% along with some consumer names. Gold moved above $1,300/oz. higher by $31 on inflation concerns and the dollar was lower against most currencies.
While no one knows where 2018 will be headed, lower taxes will surely benefit corporate profits, which will take up some of the slack in today’s elevated valuations. The biggest threat to equities, as they trade close to perfection, is looming inflation. With higher energy costs and increases in wages, inflation is almost certain; while to what degree remains the big unknown. The flattening yield curve also has traders on edge, which may signal an economic slowdown. With short-term rates on the upswing, longer term rates are ebbing and an inverted yield curve would pose a danger signal. While the trend for stocks remains positive, better entry points may present themselves during sudden and severe dips as investors lock in some of this year’s profits.
In the meantime, I hope all of my readers have a healthy, safe and prosperous New Year.
Here is the answer to last week’s trivia question: Sweden’s The Volvo Group (aka AB Volvo), a leading truck, bus and construction equipment manufacturer, includes which famous American truck brand? Peterbilt, White, Freightliner or Mack. Answer: Mack Truck. Also, AB Volvo is no longer affiliated with the Volvo Car Co., now owned by China’s Zhejiang Geely Holding Group. Coincidentally, Geely bought a $3.24 billion stake in the truck company this week.
Today’s Trivia Question: As mentioned, the S&P 500 was up 19.4% this year. It had its worst year in 2008 as a result of the financial crises. That year the S&P fell? 19.4%, 27.8%, 38.5% or 42.7%.