January 11, 2018

Stocks Wrap Up Vintage Year with December Gains

Global stock indices extended their record-breaking rally in December to end 2017 with the biggest annual returns since 2013.

The STOXX® Global 1800 Index added 1.4%1 in the month when measured in dollars to a new all-time high amid ongoing optimism about the outlook for the economy and corporate earnings. The index posted a 14th straight month of gains, a feat never accomplished in the past two decades. It rose 0.6% in euros after the common currency gained 0.9%.

The STOXX® USA 900 Index climbed 1.1% to a new record. The US benchmark has also posted a gain in each of the last 14 months.

The EURO STOXX 50® Index of blue-chip companies in the Eurozone lost 1.8% when measured in euros, dragged lower by shares of exporters including Unilever and Airbus. The pan-European STOXX® Europe 600 Index, which includes companies from non-euro nations, gained 0.7%.

Markets underpinned by economic growth, monetary policy

Equities rallied throughout last year amid signs of accelerating growth in the world’s major economies, and as accommodative monetary policy in developed nations supported financial conditions and investor bullishness. The STOXX Global 1800 Index advanced 23% in the year in dollar terms, the best performance in four years, but gained 7.8% in euros following a jump in the European currency.

From readings of gross domestic product growth, to purchasing managers’ surveys and corporate earnings, data has reflected an economic expansion that’s gathering pace. The US Federal Reserve raised its key interest rate in December for the third time in 2017.

Greece excels as Italy struggles

The STOXX® Greece Total Market index led gains in local currencies among 23 developed national markets with a 12% gain in the month. It was followed by a 5.7% advance for the STOXX® Israel Total Market index and a 4.9% gain for the STOXX® UK Total Market index.

For the full year, the ranking was topped by a 32% gain for the STOXX® Austria Total Market index, followed by a 22% advance for the STOXX® Singapore Total Market index and a 21% gain for the STOXX® USA Total Market index.

After months of slow reform progress, both the US House of Representatives and Senate approved in December what’s been described as the largest rewrite of the American tax system in decades. The new US tax bill, which will cut the corporation tax to 21% from 35% currently, has further fueled expectations of an expansion in the economy and in corporate profits for 2018.

The STOXX® Italy Total Market index was the worst-performing national index in the month, with a 2% drop. The Italian government announced on Dec. 28 that a general election will take place on Mar. 4, as analysts warned the vote could lead to a hung Parliament and political instability.

Metals prices help mining stocks rebound

The STOXX® Global 1800 Basic Resources index was the top performer among 19 supersectors in December with a 9.9% gain, rebounding from the bottom slot a month earlier. The Thomson Reuters Core Commodity CRB Total Return Index rose 2.6% in the month. There was, particularly, a strong move up in prices for gold and copper in the two last weeks of the year, helped by a weaker dollar and optimism about the direction of global growth.

At the other end, the STOXX® Global 1800 Utilities index was December’s worst performer, with a 4.3% retreat. Utilities, which rank among the highest dividend payers, reportedly fared poorly as a rise in long-term rates made their dividends less appealing for income investors. The yield on ten-year US Treasurys climbed as much as 18 basis points between November and December.

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1 All performance figures are net returns.