Market Extra: The fourth quarter continued 2017’s streak of broad-based stock strength

2017 was the year that basically everything came up Yahtzee for U.S. investors.

Across the economy throughout the year, there was broad-based strength in equities and most fixed-income categories, as well as precious metals like gold, which often have an inverse correlation to the types of assets perceived as risky.

The fourth quarter lately extended this trend, although a few modest cracks appeared in bonds, with prices of both so-called junk bonds and Treasurys falling in the final three months of the year. In some cases, that weakness was enough to push prices lower for 2017.

Equities were supported by a number of factors over the fourth quarter, including continued strength in corporate earnings and improving economic data.

The passage of a tax-reform passage was seen as providing an additional tailwind to equities, with a lowered corporate tax rate—to 21% from 35%—seen helping to boost profits.

The Dow Jones Industrial Average’s quarterly gain marked its best quarterly performance since the first quarter of 2013. The blue-chip average also posted ninth straight quarterly advance, its longest streak since 1997. The S&P 500’s gain over the quarter was its biggest quarterly rise since the fourth quarter of 2013. The fourth quarter will also mark the ninth straight positive quarter for the S&P, its longest streak since one ending in the first quarter of 2013.

Read: These are all the records stock indexes hit as with 2017 trading at a close

The following table shows the quarterly move of major stock indexes and regions, over both the quarter and the year. For Europe and emerging markets, the move is based on popular exchange-traded funds that track the regions.

Security Price move over the quarter Price move over 2017
Dow Jones Industrial Average DJIA, -0.48%   10.3% 25.1%
S&P 500 SPX, -0.52%   6.1% 19.4%
Nasdaq Composite Index COMP, -0.67%   6.3% 28.2%
Russell 2000 RUT, -0.87%   3% 13.1%
Vanguard FTSE Europe ETF VGK, +0.05%   1.4% 23.4%
Vanguard FTSE Emerging Markets ETF VWO, +0.48%   5.4% 28.3%

In the U.S., the stock market’s advance was widespread. Of the 11 primary S&P 500 sectors, 10 of them posted positive returns over the quarter. For the year, nine of the 11 ended higher.

Sector Price move over the quarter Price move over 2017
Utilities -0.6% 8.3%
Telecommunications 2.3% -6%
Materials 6.4% 21.4%
Information Technology 8.7% 36.9%
Industrials 5.5% 18.5%
Health Care 1.1% 20%
Financials 8.1% 20%
Energy 5.3% -3.8%
Consumer Staples 5.8% 10.5%
Real Estate 2.3% 7.2%
Consumer Discretionary 9.5% 21.2%

Technology’s strength of the quarter, and over the year overall, was a major contributor to market gains over the course of 2017. Because the sector represents the largest weight in the U.S. market, its price appreciation had an outsize influence on major indexes. One of the biggest stories of 2017 was the massive gain in the so-called FAANG stocks, which refers to the quintet of Facebook FB, -0.82%  , Apple AAPL, -1.08% Amazon AMZN, -1.40%  , Netflix NFLX, -0.39%  , and Google parent Alphabet GOOGL, -0.24% Those five stocks alone contributed a sizable percentage of the overall market’s advance in 2017.

Read about the Dow’s biggest gainers and losers here, the S&P 500’s here, and the Nasdaq’s here

Commodities also performed well in the quarter. In the below table, the moves are based on ETFs that track the commodities, a popular way for investors to get exposure to the space without owning the underlying asset.

Security Price move over the quarter Price move over 2017
SPDR Gold Shares GLD, +0.65%   1.7% 12.8%
iShares Silver Trust SLV, +0.69%   1.6% 5.8%
United States Oil Fund LP USO, +0.33%   15.2% 2.5%
Source: FactSet

Fixed income posted the worst returns of the quarter, relative to other assets. Much of the trading was driven by Federal Reserve policy; the Fed raised interest rates for a third time in 2017 at its December meeting, and it is expected to continue hiking rates in 2018.

Of particular interest to fixed-income investors is the flattening yield curve, a line that plots the yield on bonds running from shortest maturity to longest. A positive curve is usually upward sloping, with longer maturities, facing more unknowns on growth and inflation, yielding more their shorter-maturity counterparts.

Related: Why the yield curve flattening — a recession red flag — is the ‘real deal’

In the fourth quarter, the only Treasurys to rise were those with the longest maturities. There was heavy weakness in government paper, with shorter maturities, which in some cases pushed those categories into negative territory for the year. Bond prices and yields move inversely.

ETF Price move over the quarter Price move over 2017
iShares Core U.S. Aggregate Bond ETF AGG, +0.10%   -0.2% 1.2%
iShares iBoxx $ Investment Grade Corporate Bond ETF LQD, +0.13%   0.3% 3.7%
iShares iBoxx $ High Yield Corporate Bond ETF HYG, +0.15%   -1.7% 0.8%
iShares 1-3 Year Treasury Bond ETF SHY, +0.02%   -0.7% -0.7%
iShares 3-7 Year Treasury Bond ETF IEI, +0.08%   -1.1% 0.3%
iShares 7-10 Year Treasury Bond ETF IEF, +0.16%   -0.9% 0.7%
iShares 10-20 Year Treasury Bond ETF TLH, +0.10%   -0.3% 2.3%
iShares 20+ Year Treasury Bond ETF TLT, +0.16%   1.7% 6.5%
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