Annual Market Recap - 2013

Stocks soared in 2013 benefiting from continued recovery in the housing and auto industries, the biggest payroll gain in eight years, strong corporate profits and an overall healthier economy. Overarching this was a combination of low inflation and the highly accommodative monetary policy decisions from the Federal Reserve that kept interest rates low and increased liquidity to the money supply. The NASDAQ Composite performed the best among U.S. equity averages, generating its strongest annual gain since 2009. The other major equity indices also performed well as the S&P 500 had its best annual performance since 1997 and the Dow Jones Industrials had its best year since 1995. The S&P 500 ended the year at 1,848, its first record year-end closing high since 1999. The Dow also closed at a new historical high of 16,576 — its 52nd all-time record-setting high of the year.

The 2013 market advance capped Wall Street with its fifth straight annual gain, the longest sustained rally since the 1990s. The S&P 500 ended at a valuation of 17.4 times reported earnings, its highest trading multiple since 2010. No wonder as its three top performers each gained in excess of 200%. All 10 of the major sectors within the S&P 500 advanced on the year, led by gains of at least 40% in Consumer Discretionary, Healthcare and Industrials. Over 460 stocks in the benchmark index advanced in 2013, the broadest rally since 1990.

The bond markets had shown strength early in the year until May when the Federal Reserve first suggested that it would begin reducing its $85B in monthly Treasury and mortgage-backed securities purchases. It wasn’t until December 18th that the Fed made good on its pledge, saying it will taper purchases by $10B in January and by $10B thereafter at successive FOMC meetings. U.S. Treasuries, as measured by the Barclays U.S. Government Bond Index, fell by 2.6% in 2013, its first annual loss since 2009. Ten-year Treasury notes experienced notable price erosion, pushing yields higher from 1.76% at the start of the year to 3.03%, its highest level since July 2011. Yields on 30-year Treasuries jumped to 3.97%, their highest since August 2011. Higher quality investment grade bonds of all types, as measured by the Barclays U.S. Aggregate Bond Index, lost 2% on the year. The Barclays Municipals Index, a proxy for tax-free municipal bonds, fell 2.6% last year. Non-investment grade corporate bonds performed best in 2013, returning 7.4%, as measured by the Barclays U.S. Corporate High Yield Index.

Commodities, as measured by the S&P GSCI Index of 24 raw materials, registered its first annual loss in five years (-1.2%).

1. Morningstar Direct (all performance percentages are total return based, which include reinvested dividend, interest)
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