World Stocks Poised to Beat the S&P 500 This Year

By Riva Gold and Lucy Craymer Features Dow Jones Newswires

Global stocks on track to beat the S&P 500

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-- Euro set for best year since 2003

-- Dollar set for biggest drop since 2007

Stocks mostly inched higher on the final trading day of year, with international equities on track to narrowly outpace the U.S. for the first time since 2012.

The MSCI AC World ex-USA Index was poised to end 2017 later Friday with gains of 24%, compared with a 20% advance for the S&P 500.

Global stock benchmarks have surged to multiyear or record highs this year, boosted by a world-wide rally in shares of technology companies, a synchronized pickup in growth around the world and unexpectedly benign inflation readings that kept central banks from moving quickly to raise interest rates.

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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.

"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.

Moves were muted on Friday in very light volume trading, with futures pointing to a 0.1% advance for the S&P 500. Asian markets closed mixed while the Stoxx Europe 600 was flat shortly after markets opened.

The pan-European index was on track to end the year 7.8% higher. While the benchmark has taken a hit from steep gains in the euro and British pound against the dollar this year, falling unemployment and rising corporate profits have driven broad-based gains across the region, just as investors' political fears diminished greatly since the French election.

"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.

The euro was up 0.1% at $1.1957, on pace for its biggest yearly gain against the dollar since 2003 with a rise of 13.6%. The British pound was also up 9.1% against the dollar for 2017, while the broader WSJ Dollar Index, which tracks the greenback against as basket of 16 others was off around 7.3%, set for its worst year in a decade.

The main question mark for investors in 2018 will be what happens to wages, and their knock-on impact on inflation and monetary policy, Mr. Mullarkey said. If that picks up, interest rates could start to rise faster than the market is ready for, he said.

Yields on 10-year U.S. Treasurys last traded at 2.432%, well below investors' forecasts at the start of the year. That makes stocks look attractive in comparison, investors say, as there are few alternatives to holding stocks.

In Asia, Hong Kong's Hang Seng rose 0.2% Friday and was on track for gains of 36% in 2017, while Taiwan's Taiex index, home to a number of Apple suppliers, was up 0.7% on Friday as tech shares continued to rebound from concerns over iPhone sales earlier this year. The index was on track to gain 15% for the year.

Emerging markets have benefited greatly this year from a rise in the region's technology giants, as well as a steady growth backdrop in China and rising commodity prices.

Japan's Nikkei Stock Average ended down 0.1% on Friday but still was up 19% for the year, its biggest gain since 2013, thanks to a September-November surge.

Still, some investors are questioning how much more room there is for stocks to move higher after a year of massive gains, particularly in the U.S., where the S&P 500 is now trading at roughly 18.4 times forward earnings, up from about 16.9 at the end of 2016.

"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."

Saumya Vaishampayan contributed to this article.

Write to Riva Gold at riva.gold@wsj.com and Lucy Craymer at Lucy.Craymer@wsj.com

(END) Dow Jones Newswires

December 29, 2017 03:39 ET (08:39 GMT)