U.S. Stocks Slightly Lower at End of Strong Year

By Riva Gold and Corrie Driebusch Features Dow Jones Newswires

Global stocks on track to beat the S&P 500

Continue Reading Below

-- Euro has biggest climb against the dollar in 14 years

-- Hang Seng logs biggest ever annual point gain

U.S. stocks posted exceptional gains in 2017. For the first time since 2012, international equities did even better.

Global stock benchmarks have surged to multiyear or record highs this year, boosted by a rally in shares of technology companies, a synchronized pickup in growth around the world and unexpectedly benign inflation readings that have kept central bank policy ultraloose. Expectations for lower taxes have also helped fuel the rally in U.S. stocks, sending the Dow Jones Industrial Average to 71 record closes, the most in a calendar year, and its best year since 2013.

The MSCI AC World ex-USA Index, which tracks non-U.S. companies across developed and emerging markets, was poised to end 2017 with gains of 24%, compared with a 20% advance for the S&P 500.

Continue Reading Below

The strong year for stocks was set to end quietly Friday, as U.S. shares wavered on the final trading day of 2017. The Dow Industrials slipped 10 points, or 0.1%, to 24827 in recent trading. The S&P 500 ticked down less than 0.1% while the Nasdaq Composite shed 0.2%. All three indexes are on track to post their best yearly performances since 2013.

"It has truly been a remarkable environment," said Eric Wiegand, portfolio manager at U.S. Bank Private Wealth Management.

"We think the trends are likely to continue next year...but with valuations being a bit fuller and investor complacency near highs, the margin of error becomes thinner," he said.

Companies in the S&P 500 are now trading at around 22.9-times their past 12 months of earnings, far ahead of their 10-year average of roughly 17-times earnings, according to FactSet. That has made it historically expensive compared with other global benchmarks, investors say, attracting inflows into emerging markets this year.

Heading into 2018, some analysts and traders said they would be focusing on projections from corporate executives about the impact of the tax overhaul on their businesses.

"Tax reform has been a major thing for markets. If corporations do in fact see tax savings, how are they going to spend it?" said Jonathan Corpina, senior managing director at Meridian Equity Partners. "If they do have savings, will they hire new employees? Add new factories? Buy other companies? Buy back stocks? Sit on cash? That'll be one of the themes to look at next year."

For now, investors and traders were sitting tight, with few shares changing hands on the final trading session ahead of the New Year's Day holiday.

Hong Kong's Hang Seng rose 0.2% Friday to gain 36% or 7918.59 points in 2017, the most ever points in a calendar year. India's Sensex rose 28% on the year, while South Korea's Kospi has risen 22%, the best point gains for both since 2009.

Emerging markets have benefited greatly this year from a rise in the region's technology giants, a steady growth backdrop in China and rising commodity prices. U.S. crude oil futures were last up 0.4% at $60.08 a barrel, around their highest since 2015, while London-listed copper futures climbed 0.2% to $7,230 a ton, near a four-year high.

Japan's Nikkei rose 19% in 2017, the most since 2013, and London's export-heavy FTSE 100 has climbed 7.8%, set to end the year around a record high.

The magnitude of the gains surprised some investors.

"There was a long laundry list of things that should've rattled markets, and nothing did," said Dec Mullarkey, a managing director on the investment research team at Sun Life Investment Management.

Gains across equity markets this year also came as yields on 10-year U.S. Treasurys have been softer than expected, last trading at 2.428%, a touch lower than where they started 2017. That has helped make stocks look attractive in comparison, investors say.

Some investors are also questioning how much more room there is for stocks to move higher after a year of massive gains, particularly in the U.S.

"All risk assets have been mushrooming in price: equities, credit, commodities," said Alain Bokobza, head of global asset allocation at Société Générale. "We're starting 2018 with the best growth outlook we've had for years. But I prefer to start the year with a few worries."

Lucy Craymer, John Wu and Saumya Vaishampayan contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

December 29, 2017 12:46 ET (17:46 GMT)