This could be a perfect year for the stock market

Bouncing technology shares are putting a perfect year back within reach of the US stock market.

While short of a recovery, the advance in the market’s biggest industry has helped the S&P 500 Index rebound from four days of losses at the start of the month. The FANG group of Facebook, Amazon.com, Netflix and Google parent Alphabet gained 1.4 per cent over five days, retracing two-fifths of the worst weekly loss in five months.

The swift turnaround has prompted market watchers like Rich Ross at Evercore ISI to predict a revival in tech leadership that will drive the S&P 500 to a fresh record by year-end. Should that happen, 2017 would be the first year ever where the benchmark index posted positive total returns in every calendar month, data compiled by S&P Dow Jones Indices and Bloomberg show.

Besides solid economic data, such as Friday’s payrolls report, equity bulls also have history on their side. December traditionally has been the kindest month to stocks, with more up readings in the S&P 500 than any other since 1927.

“We see the broader market rising into year’s end, with the best performance from the sectors which have driven the bus for much of the year,” such as tech, financial and industrial shares, Michael Purves, chief global strategist at Weeden & Co in Greenwich, Connecticut, wrote in a note Friday. “We doubt many managers will be embarrassed closing out the year with an overweight on FANG and tech.”

Computer and software companies staged a comeback as flows out of the sector eased. The Nasdaq 100 Index rose each of the past four days, offsetting a 1.2 per cent drop on Monday and ending the week up 0.1 per cent. The S&P 500 gained 0.4 per cent for the third straight weekly advance.

It was only two weeks ago that FANG stocks lost a record $60 billion in market value in a single day, causing tremors for mutual funds that had loaded up on their surging shares. Mark Spellman, a portfolio manager at Alpine Funds in Purchase, New York, took advantage of the selloff to add positions.

“If I said ouch I’d be a full body of bruises,” Spellman said. “You have to figure out if it’s an opportunity or not, and our conclusion was quickly that the business trends here are very solid, let’s use this as an opportunity.”

As in two previous episodes in June and August, the tech rout did little damage to the broader market as money rotated to laggards such as telecom and financial stocks. It was another show of resilience in a year when rising corporate profits insulated investors from volatility. Earnings for computer and software makers are forecast to rise 23 per cent in 2018, the second-most among industries after energy.

S&P 500 profits as expressed as a percentage of price sat at 4.5 per cent recently, compared with 10-year Treasury yields of 2.4 per cent. While the spread of 2.3 percentage points is about a third of where it was at the start of this bull market, it’s above the average 1.5 percentage points in the last two decades.