U.S. Versus International
The S&P 500, an index of large U.S. companies, posted a total return of 21.8% for 2017 and 6.6% for the 13 weeks ending December 31, 2017. U.S. stocks lagged behind international for the quarter as measured by the All Country World Index ex-U.S. stocks, a representation of international stocks outside the U.S. Total return for the 13 weeks ending December 31, 2017, was 4.2%.
Despite lagging for the quarter, international stocks outperformed U.S. stocks for the full year. The All Country World Index ex-U.S. stock index posted a return of 24.2% for the full year. A declining value for the U.S. dollar versus other major currencies contributed positively to international outperformance.
Hong Kong and other Asian stocks posted strong performance for the year, up over 30%. Japanese and Hong Kong securities ended the year strong. Earnings expectations remain strong for Asian companies. Chinese companies are expected to grow earnings over 13% in 2018. Both European and Asian companies posted strong earnings growth in 2017.
U.S. Sectors
Top performing U.S. sectors for 13 weeks ending December 31, 2017, by total return included Consumer Cyclical (+9.9%), Technology (+8.6%) and Financial Services (+8.1%). Laggards for the 13 weeks include Communications (0.4%), Utilities (0.5%) and Healthcare (1.6%). The “risk-on” trade, characterized by growth-oriented investments versus defensive sectors, was strong again in the third quarter as confidence of U.S. economic recovery remained strong.
Technology stocks remained the place to be in 2017. The technology sector staged a strong showing of positive 37.1%. As revenue growth remains strong, investors are likely to continue rewarding the sector. Consumer Cyclical stocks were the next best sector, returning 24.5%. An attractive employment landscape coupled with consistent economic growth is likely helping contribute to strong performance in these sectors.
Energy stocks posted a nice recovery in the fourth quarter. However, low oil prices for much of the year weighed heavily on energy stocks. Major energy companies have been able to adjust to lower oil prices with growing earnings the last half of 2017. The S&P index analyst estimates energy stocks to have the strongest earnings growth in 2018.