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Originally published December 31, 2013 at 7:33 PM | Page modified December 31, 2013 at 8:00 PM

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Wall Street shrugs off crises to end year of record-setting feats

The Dow Jones industrial average and the S&P 500 index notched record after record this year as Federal Reserve policies and company profits bolstered stocks through a series of financial and political crises that threaten to unwind investors’ bets.


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NEW YORK — Stocks closed at all-time highs, finishing this year’s epic rally with yet another record.

The Dow Jones industrial average rose 72.37 points, or 0.4 percent, to 16,576.66 on the last trading day of 2013. For the year, the index of blue-chip stocks was up 26.5 percent — its best performance since 1995.

The broader Standard & Poor’s 500 index did even better. The S&P 500 index gained 7.29 points, or 0.4 percent, to 1,848.36 on New Year’s Eve. For the year, it was up about 30 percent.

The tech-focused Nasdaq composite index rose 22.39, or 0.5 percent on Tuesday, to 4,176.59. The index gained about 38 percent for the entire year.

The Dow notched record after record this year, blowing past 14,000 for the first time in February. The index of blue-chip stocks smashed 15,000 in May, 16,000 in November. Tuesday’s record closing high marked its 52nd for the year.

The year’s rally was fueled partly by the Fed’s monumental stimulus program, known as quantitative easing.

The central bank announced this month that it would begin gradually scaling back its $85 billion in monthly bond purchases that have kept interest rates low but have sent investors clamoring for returns in riskier vehicles such as stocks.

“We’ve had a government shutdown and debt-ceiling debate that brought us to the edge of default and the stock market didn’t care,” said Jack Ablin, chief investment officer at BMO Private Bank. “For the most part, Wall Street shrugged it off.”

Of course, it wasn’t all about the Fed. Companies also played a part.

Despite a middling economy, U.S. corporate earnings rose for a fourth straight year. Total earnings for S&P 500 companies in 2013 are forecast to increase 5.37 percent, to a record $109.03 a share, according to data from S&P Capital IQ.

“It’s tough to argue that companies are in anything other than good health,” says Paul Atkinson, head of North American equities at Aberdeen Asset Management, a global fund-management company that oversees about $3 billion.

As 2013 drew to a close and evidence of a strengthening economic recovery mounted, Wall Street was feeling giddy. But the feeling was tinged with a sense of anxiety that the ascent might have been fed by a bit too much hot air.

“It’s really great, but you just don’t feel entirely comfortable with it,” said Dan Morris, the chief investment strategist at the asset manager TIAA-CREF.

Most analysts delivered their forecasts for 2014 with a good dose of caution, warning that corporate profit would have to catch up with stock prices before further gains were warranted.

In other popular corners of the financial markets, investors were left nursing their wounds after previously reliable assets turned negative. Goldbugs were routed as the price of gold plummeted 28 percent. The drop came after years in which pessimistic investors stockpiled gold as a hedge against bad times. Gold finished Tuesday at $1,202.30 an ounce.

More investors felt the sting of a decline in the bond market after decades in which bonds were trumpeted as the safest place for retirement money. The prices of bonds fell as the yield on the benchmark 10-year Treasury nearly doubled during the year, ending on Tuesday at 3.03 percent.

A Bank of America index of the total returns on U.S. government bonds fell 3.2 percent for the year, the first annual decline since 2009. Few are predicting much of a turnaround any time soon, given the likelihood of a continuing rise in interest rates.

The year began shortly after the fractious debate over the so-called fiscal cliff, which was resolved only on the last day of 2012. The average prediction of strategists at the big banks was that the S&P 500 would rise a modest 7.3 percent in 2013, according to a tally done by Bloomberg. Those projections were quickly upended when the year began with a rally that ran almost unbroken for months.

But then when the Greek government fell apart at the beginning of the summer, there were fears that the European common currency might splinter with it.

About that time, Fed officials began dropping hints that they might be ready to start pulling back on its bond-buying program. That led to a market downturn and even worse damage in developing countries that had used the Fed’s easy money to take out cheap loans.

When those flare-ups faded, Republican congressional leaders resisted raising the government’s borrowing limit, threatening to push the country into default.

“It was surprising to me this year with all the political dysfunction in Washington that we didn’t see more of a pullback,” said Marshall Front, the chairman of Front Barnett Associates. “I’ve been calling for a correction for two years and I still haven’t seen one.”

As each crisis was resolved, new data came out pointing to an economy that was strengthening slowly, but more rapidly than many had predicted. Over the last month alone, the unemployment rate dropped to 7 percent while the economy’s growth rate was revised upward significantly. On the last day of the year, new data showed that consumer confidence and home prices had risen more than expected.

Material from Los Angeles Times, The Associated Press, Bloomberg News and The New York Times is included in this report.



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