The S&P 500 (^GSPC -1.20%) did quite well in 2016, finishing the year with a total return of about 12%. That was far better than 2015's flat performance, and new records made many index investors quite happy with the year's results. Yet the top stocks in the S&P 500 did far better than the overall benchmark's return. Let's take a look at the list of the best stocks in the S&P and then draw some conclusions from their performance.


2016 Return

NVIDIA (NVDA -1.75%)




Freeport-McMoRan (FCX 0.85%)


Newmont Mining


Spectra Energy


Applied Materials
(AMAT -1.39%)


Quanta Services


Comerica (CMA -2.12%)


Martin Marietta Materials




Source: S&P Global Market Intelligence.

The energy sector is back!

The most obvious source of strong performance among S&P 500 stocks was the big bounce in oil and natural gas prices during 2016. After beginning 2016 at below $40 per barrel and quickly falling below $30 early in the year, crude oil prices climbed above $50 per barrel to end the year. Natural gas did even better, finishing 2016 with a nearly 60% rise from where they ended in 2015.

Companies across the sector felt the impact of those gains. For producers like Freeport-McMoRan, higher prices meant better prospects for bringing future projects on line as well as better profits for existing drilling. For services companies like Halliburton and infrastructure specialists like ONEOK and Spectra Energy, greater production meant higher needs for their goods and services, and that helped drive share-price gains for those stocks as well.

Image source: Getty Images.

Moreover, companies outside the industry that focused strongly on serving energy companies also benefits. Comerica is a good example, because the Dallas-based regional bank had a higher than average concentration of lending to energy companies in its loan portfolio. That contributed to subpar performance in 2015 during crude's plunge, but Comerica's stock price tracked the price of crude quite closely as it rebounded. Moreover, more favorable conditions for banks generally also contributed to its strong performance.

Indeed, energy was just the most visible of commodities that rebounded. Freeport's and Newmont's gains also reflected strong performance for copper and gold, and the appearance of Martin Marietta Materials on the list shows that even demand for basic materials like construction aggregates was generally better in 2016 than in recent years.

Given how far energy prices fell, there's every reason to believe that the commodity could continue to climb in 2017. The question, though, is how much stellar gains in many energy stocks have already taken future oil-price increases for granted. One thing is clear: if oil doesn't manage to hold onto its recent gains and starts falling again, then the gains on these and other energy stocks will prove short-lived.

Playing the chip surge

Outside energy, technology stocks were the other big performers in 2016, but the top stocks focused on a single sector: semiconductor chips. NVIDIA's top returns came on the basis of the increasing popularity of its graphics chips, which lead the industry and have found uses in an increasingly wide variety of applications. By keeping competitors at bay and looking to capitalize in areas like self-driving cars and artificial intelligence, NVIDIA set itself apart from the crowd in 2016 and could continue to do so.

Image source: NVIDIA.

Yet success made its way throughout the chip sector. Applied Materials was a good example, posting gains as the cycle for the industry turned upward early in the year and helped the company generate better results. A focus on 3D memory chips and more efficient manufacturing processes helped Applied Materials outpace its rivals, and with strong demand for display panels and solid-state drive storage solutions, further gains are possible.

The S&P 500 gave investors solid returns in 2016, and the major trends that drove stocks higher showed up quite clearly in the best performing stocks in the index last year. Even though tensions among some market participants are rising about the stock market's prospects in 2017, investors will keep looking at these 10 S&P 500 stocks to see if they can duplicate even a portion of their strong performance over the past year.