ECONOMY AND STOCKS STRONG
Large-U.S. company shares posted a 3.8% Q4 total return following 3.9% in Q3, 2.5% in Q2, and a 1.4% Q1 of 2016. A strong Q4 was attributed to the "Trump rally" and aided by an exceptional 3.5% rate of GDP growth in Q3, a strong earnings recovery in the S&P 500, and oil production cuts announced by OPEC.
A GREAT FIVE YEARS
Over the five years ended December 30, 2016, the S&P 500 returned a total of 98%, in a great bull run. After trading sideways for about a year, from mid-2015 to mid-2016 - nosediving in two frightening double-digit descents - the S&P 500 broke out in the second half of 2016.
ENERGY TOPS ALL SECTORS
For the 12 months ended December 30, 2016, the energy sector was a standout among stock sectors, recovering from 2015's oil price collapse. Telecom, the No. 2 performing sector, showed a 23.5% gain as investors sought dividend yield in lieu of record-low bond yields.
INDEXES TRACKING ASSET CLASSES
In the five years ended December 30, 2016, large-cap U.S. stocks were the No. 1 performer among these 13 asset classes. A prudent investor would, by definition, own an array of asset classes and lag the S&P 500. But a broadly diversified investor also would not have performed as poorly as the worst-performing asset class.
THIS EXPANSION VERSUS OTHERS
This chart of recessions and recoveries since 1957 versus stock prices shows the current expansion, at 91-months old, is only about two years shy of becoming the longest recovery in modern U.S. history. If nothing bad happens, this expansion stands a fair chance of becoming the longest on record.
S&P 500 INDEX VS. EARNINGS¥
A Republican majority controls both chambers of the U.S. Congress and, under President-elect Donald J. Trump, a cut in corporate tax rates is expected to be enacted in 2017. As a result, strategists have begun raising earnings estimates on the 500 S&P companies, most recently to $142 per share.
Past performance of investments is not a very reliable indicator of future performance. ?? Indices and ETFs representing asset classes are unmanaged and not recommendations for any specific investment. Foreign investing involves currency and political risk and foreign-country instability. Bonds offer a fixed rate of return while stocks fluctuate. Leading economic indicators from the Conference Board. S&P 500 earnings bottom-up operating earnings per share for 2015 (actual), 2016 (estimated) and 2017 (estimated) as of January 4, 2017: for 2017, $118.86; for 2018, $142. Sources: Yardeni Research, Inc. and Thomson Reuters I/B/E/S survey of consensus estimates. Standard and Poor's for index price data through January 4, 2017; and actual operating earnings data through 2016.