2013: Good to the Last Drop?
Weekly Update - December 30, 2013
Stocks closed out their second week of gains despite the short trading week with the Dow and S&P 500 hovering near record highs. The S&P 500 gained 1.27%, the Dow grew 1.59%, and the Nasdaq increased 1.26%.
Investors got some good economic news last week. Consumer sentiment rose in December to its highest level in five months as Americans' outlook on job prospects and the economy improved. Increased shopping plans due to retailer discounting and rising incomes among the wealthy accounted for most of the increase, leading to higher hopes for end-of-year sales. Jobless claims fell last week to the lowest level in nearly a month. Though seasonal variation may be affecting results, it's still a hopeful sign for growth in the labor market.
It's hard to know how retailers are doing during the busy holiday shopping season. The deck was stacked against retailers this year: A shortened holiday shopping season and anemic consumer demand led retailers to aggressively discount and offer free-shipping deals to woo online shoppers. This combination created a last-minute surge that shippers couldn't handle, leading to unhappy customers on Christmas morning. Current estimates of holiday sales show an increase over 2012 of between 2.3% and 3.5%. The problem is that retailers achieved those numbers by lowering prices and relying on deep discounts. While these tactics may have boosted sales numbers, gains in absolute dollar terms may have been held back.
Looking ahead at the final week of the year, markets will likely see low volume as traders take some vacation and holiday spirits keep markets in check. Important data this week includes the latest consumer confidence numbers and a speech by Fed Chairman Ben Bernanke Friday, where he will discuss the changing Fed and take questions from economists. While Bernanke has been reticent to talk about future Fed actions, we can hope for more guidance about tapering.
Even if markets don't make any gains this week, 2013 will still be a banner year for equities with major indices notching double digit growth: To date, S&P has grown 29.11%, the Dow has increased 25.75%, and the Nasdaq has risen an incredible 37.66%.
We're also hopeful for continued performance next year, and sentiments about 2014 have shifted into cautious optimism on expectations for better global growth next year. Keep in mind that stocks may struggle to maintain their sizzling pace of gains much longer. While Fed tapering hasn't yet affected markets, investors are waiting to see how slowing quantitative easing will play out. If we continue to see positive economic data, we can expect more gains. However, investors may see a selloff as traders take profits off the table and consolidate their positions.
We hope that 2013 has been a wonderful year for you, and we look forward to continuing to support you as we move into 2014!
Monday: Pending Home Sales Index, Dallas Fed Mfg. Survey
Tuesday: S&P Case-Shiller HPI, Chicago PMI, Consumer Confidence
Wednesday: All Markets Closed for News Year's Day
Thursday: Jobless Claims, PMI Manufacturing Index, ISM Mfg. Index, Construction Spending
Friday: Motor Vehicle Sales, EIA Petroleum Status Report, Ben Bernanke Speaks: 2:30 PM ET
Notes: All index returns exclude reinvested dividends, and the 5-year and 10-year returns are annualized. Sources: Yahoo! Finance and Treasury.gov. International performance is represented by the MSCI EAFE Index. Corporate bond performance is represented by the DJCBP. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.
New home sales fall slightly. Sales of new single-family homes fell modestly in November from a five-year high, and prices moved higher, indicating that the housing sector is weathering higher mortgage rates just fine. Compared with November 2012, new home sales are up 16.6%.
Durable goods and capital orders up. Orders for long-lasting manufactured goods surged in November and a measure of planned business spending on capital goods recorded its largest increase in nearly a year, suggesting sustained strength in the economy. The increases in these two key measures caused some economists to raise Q4 GDP estimates.
Turkish lira plunges. Turkey's currency fell to record lows against a basket of currencies as domestic political woes cause investors to flee. Turkish Prime Minister Tayyip Erdogan was forced to sack nearly half of his cabinet during a corruption scandal. The combination of Fed tapering and political risk proved too much for currency traders, forcing the lira down.
Obamacare counts down the days. January 1 will bring a big test for Obamacare as hundreds of thousands of Americans begin to use their new healthcare coverage for the first time. While it's hard to know how Obamacare troubles may affect markets, the success or failure of the program will feature heavily in 2014 mid-term elections.
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