2013 was the year of unstoppable stocks

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NEW YORK (AP) — The stock market was unstoppable in 2013.AU.S. government shutdown, fear of a
default, the threat of militaryaction in Syria, big budget cuts, and a European country looking for abailout
— any number of events might have derailed the stock market. Butthey didn’t.And if skittish investors jumped
out of stocks, they lost out."2013would have been good year to wear noise-cancelling headphones,"
saysDean Junkans, chief investment officer for Wells Fargo Private Bank."There were a lot of things
that happened and the market kept movinghigher."The Standard & Poor’s 500 was poised to have
its bestyear since 1997. It was up 29.4 percent as of 12:48 p.m. Eastern timeTuesday. The Dow Jones
industrial average was also on track for astellar performance: It was up 26.3 percent, its best gain since
1995.Instead of worrying about the wider world, investors focused on the Federal Reserve and the outlook for
its stimulus program.TheFed bought $85 billion in government bonds each month in 2013. Thepurchases were
designed to hold down long-term borrowing rates andencourage spending and investment. The stimulus also
prodded investorsto move from low-yielding bonds to stocks.Investors reacted toevery twist and turn of the
program’s fate. They sold stocks in thespring and summer over fears the central bank would slow its
bond-buyingprematurely. They worried that every bit of good economic news signaledthe end of support. But in
December, as hiring grew consistentlystronger, investors were confident enough in the economy that
theyreacted positively when Fed officials finally decided to dial backpurchases. The Fed also reassured the
market by signaling it would keepshort-term rates near zero. The stock market, which hovered belowall-time
highs, returned to record territory.Of course, it wasn’t all about the Fed. Companies also played a
part.Despitea middling economy, U.S. corporate earnings rose for a fourth straightyear. Total earnings for
S&P 500 companies in 2013 are forecast toincrease 5.37 percent, to a record $109.03 a share,
according to datafrom S&P Capital IQ."It’s tough to argue that companies arein anything other
than good health," says Paul Atkinson, head of NorthAmerican equities at Aberdeen Asset Management, a
global fund managementcompany that oversees about $3 billion.Investors, emboldened bythe Fed’s support and
low inflation, were willing to pay more for thoseearnings. The price-earnings ratio for the S&P 500
index, a measureof earnings compared to stock prices, rose to 15.4 from 12.6 at thestart of 2013, according
to FactSet data. By that measure, stocks grewmore expensive, but aren’t necessarily overvalued. The P/E
ratioremained below its 20-year average of 16.5.Here are 10 lessons from the year of the bull:SMALL
COMPANIES CAN GIVE BIG RETURNSSomeof the best performers in 2013 weren’t the big blue-chip stocks,
butsmaller ones. The Russell 2000, an index that tracks small stocks, rose37.1 percent, more than the Dow
and the S&P 500. Smaller companiesare more focused on the United States than larger
multi-nationalcorporations. That means they benefit more when the U.S. grows fasterthan other parts of the
world, such as Europe. That’s exactly whathappened in 2013.THE BOND PARTY IS OVERYes, they weresafe, but
with 10-year Treasury notes paying interest below 3 percentfor most of 2013, bonds weren’t sexy. From 1981
to 2012, government andcompany bonds rose 35 percent, according to the Barclays Capital U.S.Aggregate Bond
Index, a broad measure of the debt market. This year,bonds in the index handed investors a loss of 2
percent, the first losssince 1999.As the economy improves, many investors believe that interest rates will
continue to rise and bonds will only fall further.DON’T WAIT FOR THE DIPSEvenwith all the unsettling
headlines, 2013’s stock surge was achievedwithout a significant wobble. The S&P 500 has gone more
than 27months, since Oct. 3, 2011, without a correction, defined as a drop of10 percent or more. That
compares with an average streak of 18 monthsbetween such declines, according to S&P Capital
IQ.Investorswho sat out the rally in stocks are left with a quandary: Do they buynow that stocks have become
more expensive, or do they stay on thesidelines, waiting for a dip, and risk being left further behind?A
STOCK RALLY DOESN’T NEED TO BE LOVEDSignsof euphoria were largely absent from the stock market, despite the
biggains. In fact, the market seemed out of step with a fragile economy.Thepace of mergers and acquisitions
lagged as executives remainedunwilling to strike large deals amid uncertainty about the economy.Corporate
profits rose, but largely due to cost-cutting, not highersales. Hiring picked up, but at a sluggish
pace."I’ve never seen anear 30-percent year where investors are so unhappy," says JonathanGolub,
chief U.S. market strategist at RBC Capital Markets.Investorsput $77.6 billion into U.S. stock funds in the
first 11 months of theyear, according to Lipper fund data. The last time investors put moremoney into stocks
than they took out was 2005. But the inflows were onlya trickle compared with the $451 billion withdrawn
from stock fundsbetween 2006 and 2012.THE IPO MARKET IS BACKThe number ofinitial public offerings rose to
its highest level since before therecession in 2007, according to data from Dealogic as of Dec. 17.
It’seasier for companies to sell stocks in a climbing and steady marketbecause investors are more confident
they can make money.The average IPO stock rose 35 percent in 2013, outperforming the S&P 500,
according Renaissance Capital data.Hotelchain Hilton Worldwide and social media site Twitter went public.
Intotal, companies sold $61 billion of stock in 2013, as of Dec. 17, anincrease of 30 percent from 2012.In
the years that followed thefinancial crisis and the Great Recession, a volatile stock market madelisting new
companies more difficult, says Scott Cutler, head of globallistings for the New York Stock Exchange. The
smooth ascent of stocks in2013 ensured that the market for IPO’s stayed open all year."Iexpect the
environment to continue as we have seen it in 2013," Cutlersays. "Investors have been making money
in equities again."CHANGE IS CONSTANTThe30-member Dow got a makeover in September, swapping out three
oldmembers for three new ones. It was the biggest shake-up for theblue-chip index in almost a decade. Out
went aluminum producer Alcoa,Bank of America and Hewlett-Packard. In came Nike, Goldman Sachs andVisa.
Despite its name, the Dow Jones industrial average is no longerdominated by industrial companies and now
contains financial firms likeJPMorgan and Travelers, as well as retailers like Home Depot andWal-Mart,
reflecting the changing nature of the U.S. economy.EUROPE IS GETTING BETTERJittersabout Europe subsided. In
2012, concerns about the health of thebanking systems in Spain and Italy weighed on U.S. stock markets.
In2013, despite some flashbacks — worrying Italian elections in Februaryand the collapse of the Cypriot
banking system in March — investorsdidn’t panic.THERE’S ALWAYS A GLITCH IN THE SYSTEMAtechnical glitch
halted trading on the Nasdaq for three hours in August,embarrassing the stock exchange that hosts the
biggest names intechnology, including Apple, Microsoft and Google. Though less alarmingthan the "flash
crash" of 2010 that set off a stock market plunge, itonce again raised questions about the pitfalls of
the electronic tradingthat now dominates stock exchanges.The glitch in August was themost notable of 2013
for the Nasdaq, but not the only one. There werebrief outages in September and November.DIVIDENDS
MATTERInvestors also focused on dividends as bond yields started 2013 close to record lows.TheS&P
500 dividend yield, which measures the dividend payment onstocks versus their price, started the year at
2.17 percent, higher thanthe 1.76 percent yield on 10-year Treasury notes.Utilities andphone companies,
traditionally big dividend payers, began the yearstrongly as investors sought steady stocks with
bond-likecharacteristics. Utilities companies in the S&P 500 surged 18percent in the first four
months of 2013 before Treasury yields startedrising, curbing their appeal.Companies are also taking note
ofinvestor’s desire to see dividend payments. As of Dec. 20, 417 companiesin the S&P 500 were paying
dividends. That’s the highest numbersince 1998 when 418 companies were paying regular dividends.Including
dividends the S&P 500 returned 31.9 percent, and the Dow 29.1 percent.THE FED MATTERS MORE THAN
CONGRESSWhilebudget battles have rattled the markets before, investors started toget wise to Washington’s
habit of wrangling until the last minute beforereaching agreements on the budget and other fiscal
policy.In2011, lawmakers shook financial markets when they argued about raisingthe debt ceiling and pushed
the U.S. toward default. Stock marketsslumped before a deal was reached at the start of August and
thenplunged further as the Standard & Poor’s rating agency cut thenation’s debt rating days later.
The S&P 500 dropped 15 percent in afour-week period between July 20 and Aug. 10, 2011.In
2013,investors stayed calm despite the first government shutdown in almosttwo decades and brinksmanship over
the debt ceiling. After dippingbriefly at the start of the shutdown, the S&P 500 rose 2.4
percentbetween Sept. 30 and Oct. 16, when a deal was reached to fund thegovernment and avoid
default."Not that Washington has yet become apositive, but I think that the bar got so low it was
pretty much on theground," says Liz Ann Sonders, chief investment strategist at CharlesSchwab &
Co.Copyright 2013 The Associated Press. All rightsreserved. This material may not be published, broadcast,
rewritten orredistributed.

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