This commentary is an excerpt from the Growth Seeker Weekly Roundup. Click here to learn more about this dynamic portfolio and market information service.
We've closed the books on 2016 and thanks to the push higher since early November, the S&P 500 ended the year up 9.5%. The other major market indices -- the Dow Jones Industrial Average and the Nasdaq Composite Index -- rose about 13% and 7.5%, respectively, in 2016. The market's performance was far better than most expected some 11 months ago, but those year-end numbers also overshadow the fade we've seen in the last few weeks. While there was fervent anticipation a few weeks ago that the Dow would reach the 20,000 milestone, it has faltered of late, which might be attributable to both profit-taking and a sobering view of how far, how fast stocks have moved the last nine weeks.
During the week, all of the major stock indices gave ground, with the Dow falling about 0.9% and the Nasdaq Composite dropping 1.5%. In between those two, the S&P 500 was off 1.1% for the week. Looking at the Growth Seeker portfolio this past week, a number of positions, including CalAmp (CAMP) , International Flavors & Fragrances (IFF) , Fortinet (FTNT) and Ultimate Software (ULTI) outperformed both the S&P 500 and the Russell 2000. For the quarter, the portfolio had very strong performances from United Natural Foods (UNFI) and AMN Healthcare Services (AMN) , which both rose around 20%. We'll continue be patient with our CalAmp shares given the pending federal electronic logging device (ELD) mandate. The same goes for our positions in Under Armour (UA) (UAA) and Amazon (AMZN) .
In hindsight, 2016 was quite a year, with Greek debt relief, the European Union's tax crackdown, the deal to sell Yahoo (YHOO) , the rumored takeover of Twitter (TWTR) , the unexpected Brexit vote and plunge in the sterling, the Italian referendum and Banca Monte dei Paschi bailout, Russian hacking, OPEC's deal to cut output, and one of the most viscous presidential campaigns culminating in the election of Donald Trump, which was followed by the Federal Reserve's lone rate hike during the year and a surge in the U.S. dollar. You'd be hard-pressed to find anyone who saw all of that happening this time last year.
Despite all of those headlines, the Dow, S&P 500 and Nasdaq all hit historical highs even though 2016 earnings expectations were dialed back throughout the year. At the start of 2016, analysts were projecting year-over-year earnings growth of 5.3% on revenue growth of 4.4%. As we all know by now, during the first half of the year S&P 500 companies reported falling revenues and earnings, with the second half delivering better performance. However, sifting through the numbers, we find 4Q 2016 earnings will dip following the 6.4% sequential increase achieved in 3Q 2016.
The bottom line is earnings delivered by the S&P 500 group of companies is likely to increase less than 1% in 2016 compared to 2015, leaving S&P 500 earnings relatively unchanged since 2014. To be fair, there have been several drags on those results -- including large earnings declines from energy companies and other contractions in the telecom, industrials and materials sectors. While there are prospects for a reversal from energy names over the coming quarters, the reality is the S&P 500 is closing 2016 with a P/E multiple near 18.9x. Remember that figure.
Looking back, the S&P 500 peaked on Dec. 13 following investor enthusiasm for potential tax cuts, deregulation and fiscal spending, which, on a combined basis, would jump start economic growth. Since then, however, the S&P 500 traded sideways until this past week when it fell roughly 1%. This is likely a reflection of the market's rapid rise as well as growing realization that the pace of economic growth slipped in 4Q, and that the impact of Trump's policies will not be felt until the second half of 2017, at the earliest.
With that in mind, we took a look at the latest set of 2017 expectations from Wall Street strategists. In doing so, we found the group sees the S&P 500 climbing to 2,300-2,500, for a potential increase of 2.5%-11.5% in 2017. The range for expected 2017 S&P 500 company earnings spans from a low of $123.90 to high of $134 per share. Averaging out 15 forecasts, the consensus price target for the S&P 500 is 2,356, while consensus EPS expectations for the S&P 500 group of companies is $127.46, increases of 5% and 7.4%, respectively.
Based on those averages, the P/E multiple accorded to the S&P 500 in order to hit that average price target is 18.5x. Given that projected modest contraction from the current 18.9x multiple, this tells us one of the key drivers of stock prices next year will be earnings growth. As such, we'll continue to focus on those companies that are poised to grow their earnings faster than the S&P 500. By this we mean real earnings growth, not earnings growth that hinges more on buybacks than operating profits and margin expansion. In other words, we'll be living up to the portfolio's name -- seeking growth in 2017 and beyond, much like we have with a number of our existing positions.
As we await December-quarter results, which are likely to include some initial or updated views on what companies expect over the coming quarters, we've already heard several mention the potential impact of continued dollar strength -- and we are bound to hear more about the effect of higher energy costs that will flow through to higher gas prices should OPEC production cuts stick. We also expect to hear more on the impact of higher minimum wages as 19 states are set to boost levels in 2017.
Last week we touched on the negative revisions in the Atlanta Fed's GDP Now 4Q 2016 forecast to 2.5%, and pointed out that even after that downtick it stood well above the 4Q 2016 forecasts from the New York Fed and several investment banks. This week it was rather quiet on the data front, but the numbers we did get -- November pending home sales and the December Chicago PMI -- both missed expectations. While the December Chicago PMI dipped to 54.6 from November's 57.6, we'd note its fourth-quarter average of 54.3 is the highest it has been in two years.
What was most interesting in the December Chicago PMI report were the findings from a "special question" that pertains to the outlook for 2017. More than half of respondents said they expect their business "to prosper, aided by tax reforms and deregulation." Not to be cynical, but the risk, in our view, is those expectations being ahead of what we're likely to see near term. In reality, those expectations hinge on policies President-elect Trump has yet to fully flesh out, and while we are also optimistic, we see a two steps forward, one step back kind of progress in the coming months for the economy and the stock market.
As you can imagine, we're rather curious to see the Atlanta Fed's next update to GDP Now that lands on Jan. 3, as well as updates for those other GDP forecasts. Odds are we will still see a downtick in 4Q 2016 GDP expectations compared to 3Q 2016, but we'll have a better sense after next week's usual start of the month data. That data will include the December ISM indices, the December PMI readings from Markit Economics and the usual employment data build-up that culminates with the December non-farm payrolls report. In other words, exiting next week we should have a pretty good feel for 4Q 2016 GDP. We'll also get some insight into the Fed's December rate hike from the FOMC meeting minutes.
From an earnings perspective, things will be rather light next week, although we do have the Citi 2017 Internet, Media & Telecommunications Conference, which is likely to have some commentary relevant to our Amazon (AMZN:Nasdaq) position. Also next week is CES 2017, the annual global consumer electronics and consumer technology trade show, which should generate quite a bit of news surrounding new gadgets and technologies. We'll be listening for any commentary regarding organic light emitting diode demand, and what that means for our Universal Display (OLED) shares, in addition to comments on wireless/wireline network buildouts, 5G deployments and the Connected Car that should bode well for Growth Seeker holdings Dycom Industries (DY) and CalAmp. Meanwhile, the North American International Auto Show of Detroit 2017 is right around the corner, followed by the presidential inauguration on Jan. 20. If you were expecting some calm before the 4Q 2016 earnings storm, our advice to you is enjoy the holiday weekend while it lasts.
As we leave this year behind, and get ready to enter 2017 we've got ample cash in the portfolio to take advantage of any near-term pullback in the market as expectations come to grips with near-term economic reality. We suspect this means we'll find share prices of companies we want to own at better prices than we've seen in recent weeks. This has us excited for new opportunities in the new year. We hope you are too.
From all of us here at Growth Seeker, we hope you have a happy and safe New Year's holiday, and we've got a lot more in store for you in 2017!
-- Chris Versace is co-portfolio manager of Growth Seeker