2013 – What a Year It’s Been
2013 continues on the path of very solid gains, but it has certainly has not been a smooth ride. Stocks and bonds have had to steer clear of geopolitical risks, budget issues, and the ongoing debt crisis in the U.S. In spite of these issues the stock markets have posted very strong gains.
Stocks enjoyed their best 3 quarters in a number of years, but the question is, will we be able to continue on this pace and for how long? Bonds hit some speed bumps in the second quarter, but low single digit gains still look possible. In any market, there are always opportunities; you just need to know where to look for them.
It’s been four years since the S&P 500 hit a low of 677. As of today we are sitting at 1765 on the S&P, just off its all-time record high. Corporate earnings continue to be strong and unemployment numbers are slowly moving in the right direction as more large and small companies look to increase their workforces. Healthcare and industrial stocks have lead the way so far this year as well as strength in the technology sector. The worst performing sectors have been basic materials and utilities though both have had positive returns for the year of 10.7 percent and 14.4 percent.
Returns from International stocks have not faired as well as domestic stocks as the MSCI EAFE Index and the MSCI Emerging Markets Index have underperformed U.S. stocks. There are also concerns over rising interest rates in China, as they have been raising rates since late last year to try and head off inflation. Brazil and India also have struggled in 2013.
As for the U.S. economy, growth continues at a moderate pace with manufacturing leading the way. Consumer and business spending continues to be solid in 2013. Employment has picked up, but growth still remains slow. On the housing front new home sales had a strong first half of the year but as interest rates moved up in the summer it seemed to take some of the steam out of the housing market. Commodities have been weak in 2013 as gold and silver prices continue to fall and oil prices are trading in the mid to low 90’s. Gasoline prices continue to fall which means people will have more money to spend on other things.
Interest rates are still low, but the talk of the Fed starting to tapper next year may cause rates to finally start moving up. As a result 2013 has not been a very good year for the bond markets. The only bright spot has been in high yield bonds.
The question going into the final six weeks of the year is will the DOW and S &P end the year at all-time record highs, and what effect will the upcoming budget battles and debt ceiling have on the markets as we head into the New Year?
Editor’s note: Eric Loucks has more than 30 years of experience in the financial services industry, and has been an Investment Officer with the LANB Investment Group for the past six years. Loucks grew up in Los Alamos, spent the majority of his career with Charles Schwab in San Francisco and Phoenix and returned to New Mexico six years ago.
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