As Wall Streets best year in more than 15 draws to a close,few are expecting a repeat performance in 2014,though traders have plenty of reasons to feel optimistic.
While the market will likely enter January quietly,with many traders still out for the holidays and few major catalysts,the upward trend is seen continuing next week,especially in some of 2013s high-flying names.
Economic growth is expected to accelerate next year,boosting employment and consumer purchasing power. But with markets repeatedly notching all-time highs,that may not translate to market gains as dramatically as in 2013. Theres a pervasive feeling that the economy is getting better,and the Fed is still on the markets side after saying it would keep rates low, said Donald Selkin,chief market strategist at National Securities in New York.
However,while new money will still be flowing into stocks next year,probably well see less money come in. Theres little chance of another 30 per cent gain or so next year. The S&P 500 has risen 29 per cent so far in 2013,its best annual performance since 1997. The Dow Jones industrial average is up 26 per cent while the Nasdaq is up nearly 38 per cent.
The gains have been widespread,with all 10 S&P 500 sectors higher on the year. The weakest group,telecoms,rose 6.5 percent while consumer discretionary led the year with a gain of 40 percent.
One of the markets biggest boosts this year — the Federal Reserves stimulus programme will not be as strong a factor after the central bank announced a slowing of the program in December. The Fed beginning in January will buy $75 billion in Treasuries and mortgage-backed bonds per month,down from $85 billion,and Fed Chairman Ben Bernanke,whose term expires on January 31,suggested the U.S. central bank could continue to slowly reduce that stimulus throughout 2014.
The latest Reuters poll showed analysts expect the S&P 500 to rise to 1,925 points by the end of 2014,which represents a rise of 4.5 percent from current levels.
Subscription video company Netflix Inc was the S&Ps strongest performer in 2013,with a jump of almost 300 percent,followed by electronics retailer Best Buy Co Inc and semiconductor maker Micron Tech,both of which climbed nearly 240 percent. Tesla Motors was another standout,soaring 346 percent,while Facebook Inc more than doubled.
These names could see further upside next week thanks to window dressing, a practice in which investors buy securities with big gains to improve the appearance of their holdings before presenting the results to clients. The 2013 year will close out on Tuesday,with the market closed on Wednesday for the New Years Day holiday.
Consumer discretionary and tech names have driven the market over the past 12 months,so it wouldnt surprise me to see continued upside on them next week, said Jake Dollarhide,chief executive of Longbow Asset Management in Tulsa,Oklahoma. However,Dollarhide said the names were priced for perfection and vulnerable to pullbacks next year. There wont be a sudden lets sell Micron and Netflix movement,but if profit growth slows or a conference call doesnt go well,absolutely you could see a 20 to 30 percent selloff after doubling this year, he said.
The fourth-quarter earnings season wont start in earnest until the second week of January,but there will be a few clues into the economys strength coming out next week,with data on consumer confidence and manufacturing.