U.S. Stocks Slip at End of Strong Year

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 ACWI ex-USA Index, which tracks non-U.S. companies across developed and emerging markets, ended 2017 with a gain of 24%, compared with a 19% advance for the S&P 500.

The strong year for stocks ended quietly Friday, as U.S. shares wavered on the final trading day of 2017. The Dow Industrials declined 118.29 points, or 0.5%, to 24719.22. The S&P 500 ticked down 13.93 points, or 0.5%, to 2673.61 while the Nasdaq Composite shed 46.77 points, or 0.7%, to 6903.39. All three indexes posted 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 roughly 23 times their past 12 months of earnings, far ahead of their 10-year average of about 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 mostly sitting tight, with few shares changing hands on the final trading session ahead of the New Year's Day holiday.

Yearly gains across the globe were strong. Hong Kong's Hang Seng rose 36% in 2017, its biggest gain since 2009. India's Sensex rose 28% on the year, while South Korea's Kospi has risen 22%, posting the best point gains for both indexes since 2009.

Japan's Nikkei rose 19% in 2017, the most since 2013, and London's export-heavy FTSE 100 climbed 7.6%, ending the year at a record.

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 the yield on the benchmark 10-year U.S. Treasury failed to rise as expected, closing Friday at 2.409%, a touch lower than where it started 2017. That has helped make stocks look attractive in comparison, investors say.

Some investors are now 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 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 18:13 ET (23:13 GMT)