A Good Start to 2017

Equity markets rose for the first week of the New Year and began 2017 on a positive note, as investors cheered mildly bullish economic data and looked forward to healthier upcoming quarterly earnings reports. In a reversal of recent trends, the technology-heavy Nasdaq Composite Index outperformed the broader market, helped by strength in biotechnology shares. Conversely, the narrowly focused Dow Jones Industrial Average, which had outperformed strongly since the November elections, lagged and just missed crossing the celebrated 20,000 milestone, reaching 19,999.63 late Friday before falling back.
 
Positive readings from the manufacturing sector, both in the U.S. and overseas, helped stocks recover momentum from a weak end to 2016 when trading reopened Tuesday. Better than expected data on Chinese manufacturing helped set the tone on Wall Street, as did solid results out of the UK. The Institute of Supply Management's purchasing managers' index (PMI) followed the pattern and showed that U.S. manufacturing activity continued to expand at a healthy rate, while new orders jumped by their biggest margin in seven years.
 
Investors seem to be warming up to more positive expectations for corporate earnings in the coming year. Analysts polled by FactSet anticipate that earnings for the S&P 500 as a whole will increase roughly 3% year-over-year in the fourth quarter, roughly in line with their third-quarter performance. According to the Wall Street Journal, however, analysts are more optimistic about growth in the first quarter of 2017, expecting earnings to rise roughly 11% on steadily growing momentum throughout the year. This would mark a notable turnaround from the past two years, when earnings declined for five consecutive quarters beginning in early 2015.
 
Wednesday provided a boost with the release of minutes from the Federal Reserve’s December meeting. The minutes revealed that uncertainties about future fiscal policy weighed heavily in policymakers’ discussion of the economy and the path of monetary policy. Nevertheless, officials continued to emphasize that the pace of future rate hikes would be “gradual,” which investors appeared to take as a dovish signal.
 
Friday brought the closely watched monthly payrolls report, which showed moderate job gains in December and a welcome rise in wages after November’s decline. Stocks did not appear to react strongly to the initial release of the report, but then heavily-weighted Apple came to the rescue later in the day after a Canadian regulator announced that it was closing an investigation into anti-competitive practices by the tech giant.