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

By Riva Gold Features Dow Jones Newswires

Global stocks on track to beat the S&P 500

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

-- Hang Seng logs biggest ever annual point gain

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

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.

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.

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All of the countries tracked by the Organization for Economic Cooperation and Development are on track to post growth this year -- the first time that has happened since 2010. 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.

The S&P 500 is now trading at 18.3 times forward earnings, up from about 16.9 at the end of 2016. That has made it historically expensive compared with other global benchmarks, investors say, attracting inflows into emerging markets this year.

Market moves were muted Friday in very light volume trading ahead of the New Year 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.

Multinational-heavy exchanges in Europe and Japan have also posted solid gains this year despite a steep drop in the dollar, which has meant dollar-based revenues are worth less when translated back. The WSJ Dollar Index, which tracks the U.S. currency against as basket of 16 others, has fallen around 7.3% in 2017, set for its worst year in a decade.

The euro was last up 0.3% at $1.1985, on pace for its biggest yearly gain against the dollar since 2003 with a rise of 14%. The British pound has risen 9.4% against the dollar for 2017 while the yen has climbed 4%.

Still, 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.

Italian equities suffered a modest setback Friday after a date was set for Italian elections in March 2018, but were still on track to gain 14% for the year, while the pan-European index was on track to end 7.7% higher.

Falling unemployment, calm in the banking sector and rising corporate profits have driven broad-based gains across Europe, 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.

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.

The main question for markets in 2018 will be what happens to wages, and the knock-on impact that has on inflation and monetary policy, Mr. Mullarkey said. If inflation picks up, interest rates could start to rise faster than the market is ready for, he said, which typically means rising government bond yields and ultimately lower stock prices.

Going in to next year, 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

-- Global stocks on track to beat the S&P 500

-- 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.

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)