Earnings & Performance Diverge
Given the mixed picture for earnings in 2016, one might expect that stock and ETF returns for the various sectors would be mixed as well. But as it turns out, every sector with the exception of health care rose in 2016.
That's not surprising, as the market tends to look forward. A weak 2016 for earnings doesn't necessarily translate into a weak 2017 (and vice versa). The most clear-cut example of that is the energy sector. In 2016, earnings for energy plunged by more than three-quarters, but in 2017, they are expected to surge a whopping 344% thanks to the recovery in oil prices.
That's why energy is the best-performing sector of the year. The Energy Select Sector SPDR Fund (XLE) returned 28.4% in the year-to-date period ending Dec. 29. As they typically do, investors are looking ahead rather than looking backward.
The same can be said for the stock market as a whole. While earnings for S&P 500 companies may end up flat or only slightly higher in 2016, hopes are high that next year earnings may grow by double digits for the first time since 2011 on the back of the rebound in energy and Trump's tax cuts. In anticipation of that, the SPDR S&P 500 ETF (SPY) is ending the year up by 12.4%