2013 Stock Screens Review: The Year of the Bulls
by Joe Lan, CFA
As we approach another calendar year end, I can’t help but reflect on what an incredible year it’s been for the stock market.
Coming into this year, analysts were hoping for a positive 2013, but did not really know what to expect. Unemployment was still stubbornly high and, in addition, our economy was facing the possibility of across-the-board tax hikes in conjunction with automatic spending cuts, or sequestration. If you asked me then what the chances of the S&P 500 index gaining more than 25% for the year were, I would have said slim to none, leaning more toward none.
Now, as I am writing this, the major U.S. market indexes have all gained more than 25%, and we are merely a few weeks away from the end of the 2013 calendar year. The market has been in an upward trend for the entire year, with just some minor pullbacks. Market pullbacks during the year were almost always due to two specific reasons: weakness in the global economy, especially from a slowdown in emerging markets; and worries over the potential tapering of U.S. government stimulus measures. These concerns were at the forefront when the market dipped in mid-May. However, after concerns over tapering were alleviated, stocks began rallying again. In October, the market took another breather as the government “shut down” for 17 days due to our politicians’ inability to hammer out a nonpartisan budget deal. However, stocks were able to rebound once again shortly after the crisis was resolved.
Looking forward, one cannot help but wonder what is in store. The S&P 500 and Dow Jones industrial average have both rallied to all-time high levels, while the NASDAQ has once again broken 4,000 (the NASDAQ is still significantly lower than it was during the dot-com boom, showing how incredibly rich tech firms were during that time). While I will not make any specific predictions, it is prudent to keep in mind that our economy has been growing with an extended period of unprecedented economic stimulus. It will be telling to see how the economy responds to the tapering of the bond-buying program and, eventually, the raising of interest rates. Federal Reserve Chairman Ben Bernanke has stated that the Fed is not looking to raise interest rates until unemployment drops to 6.5%, but I would be shocked to see the current near-zero interest rate maintained if inflation starts to take off before unemployment hits that level.
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