2013 was the year that wasn’t supposed to be. The stock market returns defied gravity and the naysayers.  For those in the market, the year ended well.

 The Big Picture 

After a terrible August, which had bears crowing “I told you so”, equities went on a four-month tear, posting record after record close for the Dow Industrials and the S&P 500 index, and closing at 13-year highs for the NASDAQ composite.  As of close of business, December 31, 2013, the Dow Industrials notched its 52nd record close of the year, returning 26.5% to investors, its best performance since 1995.  The S&P 500 posted its 45th record close of the year and a 29.6% return on investment, the highest return since 1997.  The NSADAQ, while not in record territory, still ended the year 38% higher for the best annual gain since 2009 and the highest close since September 2000.

While the Federal Reserve’s easy money policy was seen as underpinning the strength of the stock market, the decision to begin tapering its asset purchases was greeted just as enthusiastically; defying expectations of a drop in equity prices once the Fed’s support was removed. 

Low interest rates have managed to stabilize the housing market, re-energize vehicle sales and assist households as they restructure or retire debt.  The labor market is improving, with job creation averaging 182,000 according to the Labor Department. However, most of the jobs created were in low-wage occupations.  Average hourly earnings rose just 1.8% in 2013. 

Government gridlock, while still prevalent, has eased a bit.  With the rollout of the Patient Protection and Affordable Care Act, also known as Obamacare, efforts to repeal the health care law are diminishing.  Congress appears to have reached agreement on a $1.1 trillion spending bill, avoiding another disastrous shutdown; while the Federal budget deficit has declined dramatically, from over $1 trillion in fiscal year 2012 to a projected deficit of $280 billion for fiscal year 2014. 

I, Investor 

The fundamentals are in place for continued economic growth.  While I doubt the stock market can continue the pace set in 2013, continued growth in corporate profits and gains in the labor market should translate into high single-digit returns for investors.

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