Skip to main content

Looking to Learn More? Sign up for our Investing Insights newsletter. Subscribe

Thanks for Signing Up!

Be sure to check your inbox for the Investing Insights newsletter to get the latest news and insights from Thrivent Mutual Funds.

Well that's unexpected - your subscription request was not submitted. Please try again.

Great news - you're on the list!

Looks like you're already on our mailing list. Be sure to check your inbox for the Investing Insights newsletter to get the latest news and insights from Thrivent Mutual Funds.

2017 recap

The steady economic recovery from the Great Recession continued to build momentum throughout 2017. Gross domestic product (GDP) growth reached a 3.3% annualized rate in the 3rd Quarter, the stock market experienced another strong year, the oil industry closed the year on an uptrend, and unemployment dipped to the lowest level since December 2000.

The S&P 500® posted positive returns for all 12 months of the calendar year in 2017 for the first time in the history of the index (and its predecessors) dating back 90 years.1

For all of 2017, the S&P 500 surged 19.42%. The current bull market is the second longest in modern history, beginning March 9, 2009 and continuing 105 months through December 2017 without experiencing a single drop of 20% (or more) from a closing high.

Consumer spending and retail sales also improved throughout the year, capped by a 4.9% year-over-year increase in holiday spending – the biggest gain since 2011.2

A new tax bill approved in December that lowers the corporate tax rate from 35% to 21% may have contributed to some of that market growth. The lower tax rate may improve profit margins while incentivizing corporations to invest more in technology and capital equipment, but the law’s effects will be varied across industries and across companies depending on their legal and capital structures. For more on the economic and market impact of the new tax bill see: 2018 Market Outlook: How Will the New Tax Plan Affect the Economy?

Here are some other highlights from the year covered in more detail later in this report:

  • Retail sales trend up. Retail sales perked up in the final months of 2017 following hurricane recovery efforts in Texas and Florida. Through the first 11 months of 2017, retail sales were up 6.3%, according to the U.S. Department of Commerce.
  • Employment keeps rolling. The unemployment rate dipped to just 4.1% as employers added an average of 174,000 new jobs per month in 2017.
  • Bond yields virtually unchanged. The yield on 10-year U.S. Treasuries was little changed from a year ago, ending 2017 at 2.41%, after ending 2016 at 2.44%.
  • Federal Reserve (Fed) raises rates again. The Fed raised the Federal Funds rate in December for the fourth time in the past 13 months.
  • Oil finishes the year strong. Oil prices were up $6.70 per barrel from a year ago, as the oil market rallied in the final few months of 2017.

What’s ahead for the economy? See the 2018 Market Outlook: How Will the New Tax Plan Affect the Economy? by Mark Simenstad, Chief Investment Strategist, Thrivent Asset Management.

In a Nutshell Chart

Drilling Down

Strong Year for U.S. Stocks

In 2017, the S&P 500 had its largest gain since 2013. It was up 19.42% for the year, from 2,238.83 at the close of 2016 to 2,673.61 at the end of 2017. The index was up 0.98% for the month of December.

The total return of the S&P 500 for 2017 was 21.83%.

The NASDAQ experienced an even better year. It was up 28.24% for 2017, from 5,383.12 to 6,903.39.

S&P 500 Index

Retail Sales Finish 2017 Strong

Holiday sales increased 4.9% in 2017 versus a year ago, according to the Mastercard SpendingPulseTM survey issued December 26. It was the largest year-over-year increase since 2011. The survey showed further evidence of the growing presence of online shopping, with that portion of the retail market exceeding 2016 holiday sales by 18.1%.3

In general, retail sales were up 0.8% in November, following a 0.5% gain in October, according to the advance monthly retail sales report issued December 14 by the U.S. Department of Commerce. Year over year, retail sales were up 6.3%.

Among retail categories, motor vehicle sales were up 4.9% through the first 11 months of 2017, building and garden equipment and supplies sales were up 8.2%, department store sales were down 2.0%, and non-store sales (primarily online) led all categories, up 10.2%.

Personal consumption expenditures also continue to edge up, and have increased for 33 consecutive months through November, according to the U.S. Bureau of Economic Analysis report issued December 22.

Employment Growth Rebounds

Employers added 228,000 new jobs in November, according to the U.S. Bureau of Labor Statistics Employment Situation Report issued December 8. That marks the second straight month of over 200,000 new jobs and the 86th consecutive month of employment gains.

The unemployment rate remained at 4.1% for the second straight month – the lowest level since December 2000. That marks a 0.6% drop this year, from a rate of 4.7% in December 2016.

Through the first 11 months of the year, employment growth has averaged 174,000 per month, compared with an average monthly gain of 187,000 in 2016.

But wage growth, which has been subdued all year, remained slow in November with only a $0.05 increase from the previous month. Year over year, wages have increased $0.64, from $25.91 to $26.55 – a gain of just 2.5%. (See: Job Growth Remains Strong with 228,000 new jobs in November)

Tech Stocks Lead All Sectors in 2017

Nine of the 11 sectors of the S&P 500 posted gains in 2017, with Information Technology leading the way. The sector was up 0.01% in December and 38.83% for the year.

A number of other sectors posted gains of about 20% or above, including Materials, Consumer Discretionary, Financials, Health Care, and Industrials.

The chart below shows the results for all 11 sectors:

S&P 500 Sectors

Treasury Yields Little Changed in 2017

In a case of all motion but no action, the 10-year U.S. Treasury market yield bounced around throughout 2017, but ended little changed. Rates were 2.44% at the close of 2016, and ended 2017 at 2.41%.

However, although 10-year Treasury yields were flat and the rate on 30-year bonds declined, the yields on shorter term government securities rose substantially in 2017. Known as the “flattening of the yield curve,” investors can now earn nearly as high of a yield on short-term securities as they can on the longer term notes and bonds. In the past, when the yield curve has flattened and inverted, it has often preceded a recession, although that is not always the case.

As expected, the Federal Reserve (Fed) raised rates in December for the fourth time in the past 13 months. The Fed raised the Federal Funds rate by 25 basis points (0.25%) in December 2016 and again in March and June of 2017 followed by another 25 basis point hike on December 13 to a new range of 1.25% – 1.50%. (See: December 2017 Outlook: Federal Reserve Likely to Raise Rates as Economy Strengthens)

US Treasury 10 Year Bond Yields

Equity Earnings Moving Up

Corporate earnings projections picked up in 2017, with the consensus 12-month forward earnings estimate for the S&P 500 moving up 10.56% versus 2016, from $132.83 at the close of 2016 to $146.86 at the end of 2017.

For the 4th Quarter, earnings estimates were up 3.36%, after ending the 3rd Quarter at $142.08.

S&P 500 Index - Forward 12 month Earnings Per Aggregate Share

As the graph below illustrates, the forward 12-month price-earnings ratio (P/E) for the S&P 500 has climbed steadily throughout 2017 – even as corporate earnings were rising – ending the year at 18.2. That’s the highest level since 2004 (and more than three points higher than the historic average). (The forward P/E measures the stock price-to-earnings ratio of the S&P 500 index based on corporate earnings forecasts for the upcoming 12-month period.)

The P/E ratio rose 1.3 points during 2017 after ending 2016 at 16.9.

S&P 500 Index - Price/Earnings Ratio

The forward 12 months earnings yield for the S&P 500, which is the inverse of the P/E, ended 2017 at 5.47%, which was down significantly from the 5.93% yield at the close of 2016. The 12-month forward earnings yield can be helpful in comparing stock earnings yields with current bond yields. After dropping more than 0.4% during the year to 5.49%, the equity earnings yield is still significantly higher than the 2.41% market rate of U.S. Treasuries. But that gap has narrowed by more than 1.5% since bond yields hit their low mark in July 2016.

S&P 500 Index - Earnings Yield

Dollar Down for the Year but Inches up in December

The U.S. dollar was down significantly versus the Euro in 2017.

The Euro was up 0.71% versus the dollar in December and up 13.85% for all of 2017.

Euro/U.S. Dollar Exchange Rate

The dollar was down 3.42% versus the Yen in 2017, but up 0.67% versus the Yen in December.

U.S. Dollar/Japanese Yen Exchange Rate

Oil Finishes Strong in 2017

Oil prices ended the year on a sustained rally. In December, the price of West Texas Crude (WTI) was up 5.26%, following a 5.55% gain in November, a 5.24% gain in October, and a 9.40% gain in September. The late flurry made up for a summer loll that sent the price of a barrel of oil down into the low $40s.

For the year, oil prices were up 12.47%, from $53.72 per barrel at the close of 2016 to $60.42 at the end of 2017.

The rise in prices is attributed to production limits by OPEC and Russia, combined with upwardly revised GDP-driven demand, that have materially reduced oil inventories by over 200 million barrels over the past several months. OPEC’s semi-annual meeting on November 30th extended production limits through year-end 2018. With additional demand growth in 2018 and 2019, oil markets should be balanced looking out to 2019, even with U.S. production increasing.

Price of Oil - West Texas Intermediate

Gold Ends an Up Year on Flat Note

Gold finished out the final quarter of 2017 with just a 1.88% price increase.

But gold still recorded a solid annual return for 2017, thanks to a fast start early in the year. After closing 2016 at $1,151.70, gold ended 2017 at $1,308.90 – a gain of 13.65%.

For the month of December, gold prices moved up 2.52%.

Price of Gold

International Equities End Robust Year on Uptick

The international stock markets closed out a strong year with a 1.52% rise in the MSCI EAFE index for the month of December.

For all of 2017, the MSCI EAFE was up 21.78%, from 1,684.00 at the end of 2016 to 2,050.79 at the close of 2017.

MSCI EAFE Index

What’s ahead for the economy? See the 2018 Market Outlook: How Will the New Tax Plan Affect the Economy?  by Mark Simenstad, Chief Investment Strategist, Thrivent Asset Management.

 

To see our Market Recaps every month and learn more about our perspective on the markets, the economy, and investing, subscribe to our Investing Insights newsletter.

Media contact: Samantha Mehrotra, 612-844-4197; samantha.mehrotra@thrivent.com

 

 

All information and representations herein are as of 1/2/18, unless otherwise noted.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management associates. Actual investment decisions made by Thrivent Asset Management will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

Indexes are unmanaged and do not reflect the fees and expenses associated with active management. Investments cannot be made directly into an index.

The S&P 500® Index is a market-cap weighted index that represents the average performance of a group of 500 large-capitalization stocks.

The NASDAQ (National Association of Securities Dealers Automated Quotations) is an electronic stock exchange with more than 3,300 company listings.

The MSCI EAFE Index measures developed-economy stocks in Europe, Australasia and the Far East.

West Texas Intermediate (WTI) is a grade of crude oil used as a benchmark in oil pricing.

Performance data cited represents past performance and should not be viewed as an indication of future results. Current performance may be lower or higher than the performance data quoted.


Seeking Alpha, First Year with No Monthly Losses?

Source: The Mastercard SpendingPulse report details holiday shopping from November 1 through December 24 and covers retail sales across all payment types, including cash and check.

The Mastercard SpendingPulse report

Factset

Well that's unexpected - your subscription request was not submitted. Please try again.

Gain From Our Perspective

Get Our Investing Insights Newsletter in Your Inbox.

SUBSCRIBE NOW

Gain From Our Perspective

Get Our Investing Insights Newsletter in Your Inbox.

SUBSCRIBE

Thanks for Signing Up!

Be sure to check your inbox for the Investing Insights newsletter to get the latest news and insights from Thrivent Mutual Funds.

Great news - you're on the list!

Looks like you're already on our mailing list. Be sure to check your inbox for the Investing Insights newsletter to get the latest news and insights from Thrivent Mutual Funds.

Ready to Invest?

EXPLORE OUR FUNDS

Market Performance