Much like last year, the Standard & Poor 500 (SPX) has continued its Bull Run in 2014. The S&P 500 has so far hit record highs on 49 occasions this year and boasts a year-to-date return of 12%. Also, the index has outperformed the Dow Jones Industrial Average’s (DJI) year-to-date return of 7.4%, but is shy of NASDAQ Composite’s (.IXIC) 14.1% gain so far this year. Following a 6.1% gain in the first half of this year, the index is up 5.6% so far in the second half.

The gains this year have come despite international concerns, which were weathered by strength in the domestic economy. In fact, the S&P 500 had started 2014 with three straight declines, which earned it the unfortunate feat of its worst start to any year in about 10 years. However, domestic events such as strong GDP numbers, improving labor market and Fed’s assurance about the economy have helped S&P 500 stay in the green and keep hitting record highs.

*Return as of Dec 19

Following a robust Bull Run in 2013, benchmarks began 2014 on a sour note. Emerging market concerns, China’s dismal economic data and finally the Fed taper dealt severe blows to the market in January. However, right after the dismal start, S&P 500 rebounded strongly in February with strong gains. S&P 500 continued its surge, tackling the Russia-Ukraine crisis.

However, the positive run was halted in July, when the S&P 500 declined 1.5%. Escalating geopolitical tensions including the ones in Gaza, Ukraine, Malaysian Airlines passenger jet being shot down, and the Eurozone banking system unnerved investors. The rebound came again in August, but S&P 500 ended with losses again in September, largely due to disappointing data from China and the Eurozone.  

The S&P has since then been on the winning side. Ebola scare and a slump in oil prices caused trouble for the benchmark till mid-October. On Oct 15, S&P 500 was inches away from entering a correction. However, the bulls took hold of the market thereafter, negating talks of correction banking on strong third quarter earnings numbers. Meanwhile, the Fed ended its asset repurchase program, while continuing with low interest rates.

International Concerns vs. Domestic Strength

From the very beginning of the year, geopolitical tensions looked threatening as the Russia-Ukraine crisis led to standoff with the Western countries and sanctions were imposed on Russia. Violence in the Middle East followed later, intensifying the political concerns. Election turmoil in Greece was also a headwind earlier this year.

Meanwhile, key economies like China and the Eurozone have disappointed investor sentiment on many occasions because of their dismal economic reports. Japan too has failed to improve investors' mood as it entered into a technical recession. Oil prices were in the limelight and crude prices have dropped below $60 a barrel for the first time in five years.

However, the US has outperformed and tackled all these concerns. Economic data on most fronts have mostly been positive. The GDP looked fairly strong and so did the labor market. GDP shrunk 2.9% in the first quarter of 2014, the worst performance in five years. However, GDP increased by 4.6% in the second quarter and 3.9% in the third quarter, according to the second estimate. The economy also added a minimum of 200,000 jobs for 10 straight-months in November. This is the longest stretch in more than 30 years. Unemployment rate remained at a six-year low of 5.8%.

An improvement in the employment situation led to the US Federal Reserve ending its third round of bond buying. Also through the year, investors kept a watch on what the Fed decides regarding the rate hike. In a statement on Wednesday, the Fed said once again that they would be “patient” before raising rates, and added that the overall outlook hadn’t much changed from their earlier assurances that rates would stay low for a “considerable time.” This statement boosted markets to their best gains in 2014.

S&P Industry Groups

*Returns as of Dec 19

Among the industry groups, Healthcare led the gains and was followed by Utilities. However, Energy was at the bottom with a massive loss of almost 9%. This was the not the case even at the mid point of this year as Energy sector had robust gains of 13.1% til Jun 30. The energy sector temporarily had also become the highest year-to-date gainer among the industry groups.

During the first half of the year, the energy sector gained from tensions in Iraq. This helped crude prices move north and oil prices had hit their highest level in nearly nine months in early June.

However, for over six months now, investors have been dealing with plummeting crude prices. The West Texas Intermediate (WTI) crude price lost momentum since June and has been showing weakness. Amid the soft oil pricing scenario, the international cartel of oil producers’ – Organization of the Petroleum Exporting Countries (OPEC) – stand against oil output cut.

Since Jun 20, Brent crude and WTI crude prices have slumped 46.7% and 47.6%, respectively. Since Jul 1, the energy sector has nosedived 19.5%.

Top 5 S&P Performers

Given below are the top 10 performers on YTD basis:

We will now pick 5 top S&P 500 performers based on favorable Zacks Rank, impressive forward price to earnings ratio (PE), positive earnings estimate revisions and year-to-date returns. So, the following stocks not only surged in 2014 but are poised to move north next year as well, making them profitable picks at the moment.

Southwest Airlines Co. (Analyst Report) is a passenger airline that provides scheduled air transportation in the United States. Southwest Airlines is one of the world’s most profitable low-cost airlines that consistently offers the lowest fares.

Southwest Airlines has returned 113.7% year to date. It carries a Zacks Rank #1 (Strong Buy) and the forward PE currently stands at 20.68x. The current quarter and current year estimates has been revised up by 5.9% and 1.6%, respectively, over the last 30 days.

Avago Technologies Ltd. ( Analyst Report) is a premier designer, developer and global supplier of a broad range of analog semiconductor devices. Avago is currently the 9th largest semiconductor company (excluding memory business) in the world.

Avago has returned 90% year to date. It carries a Zacks Rank #1 (Strong Buy) and the forward PE currently stands at 15.01x. The current quarter and current year estimates has been revised up by 18.7% and 14.4%, respectively, over the last 30 days.

Delta Air Lines, Inc. (Analyst Report) is the second largest U.S. airline and provides scheduled air transportation for passengers and cargo throughout the U.S., and around the world. Delta is in constant endeavors to expand its operational base through the introduction of new services connecting various domestic and international destinations.

Delta has returned 72.5% year to date. It carries a Zacks Rank #1 and the forward PE currently stands at 14.34x. The current quarter and current year estimates has been revised up by 9% and 1.9%, respectively, over the last 30 days.

Alcoa Inc. (Analyst Report) is among the world leader in the production and management of primary aluminum, fabricated aluminum, and alumina as well as the world s largest miner of bauxite and refiner of alumina. It involves mining, refining, smelting, fabricating and recycling of aluminum. Alcoa is also engaged in investments and operating activities in, among others, Australia, Brazil, China, Guinea, Iceland, Russia and Saudi Arabia, all of which present opportunities for substantial growth.

Alcoa has returned 50% year to date. It carries a Zacks Rank #2 (Buy) and the forward PE currently stands at 18.86x. The current quarter and current year estimates has been revised up by 4.2% and 2.4%, respectively, over the last 30 days.

Lowe's Companies Inc. (Analyst Report) is the world’s second largest home improvement retailer. The company primarily operates in the United States, Canada and Mexico. Lowe’s offers a wide range of products and services for home decoration, maintenance, repair, remodeling, and property maintenance.

Lowe's has returned 35% year to date. It carries a Zacks Rank #2 and the forward PE currently stands at 25.08x. The current quarter and current year estimates has been revised up by 7.3% and about 1%, respectively, over the last 30 days.

Markets may continue to move up again in 2015 if economic data continue to be strong. Economic stimulus measures from key central banks may also be helpful. Geopolitical tensions and international economic weakness may however restrict gains.

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