2013 was a good year for stock investors and a bad year for bond investors. Stocks had their best year since 1997, while bonds had their worst year since 1994. Improving economic data pushed stocks higher while at the same time causing bonds to sell off as long term interest rates moved higher from their historic lows.
The stock market rose in ten of the twelve months of 2013 and set fifty one record highs during the year. Stocks have risen in ten of the last eleven years, the exception being 2008. Since the bear market low in March of 2009 (fifty-seven months ago), stocks have gained roughly 175% and have not pulled back more than 10% since October of 2011.
Comparing this bull market to other bull markets gives us some context. Since 1928 there have been thirteen bull markets, including this one. The average gain has been 165% and has lasted, on average, fifty-eight months. The best and longest bull market was October of 1990 to March of 2000, when stocks gained 417%. The smallest bull market was from October of 1966 to November of 1968 when stocks gained 25%. In other words, this has been an average bull market by historical standards.
We are often asked why the stock market continues to rise when the economy is not doing very well. The markets do not care as much whether the economy is good or bad as whether the economy is getting better or getting worse. By most measures, the economy continues to get better, as it has been doing for the past four years. This has been a slow and sluggish recovery, but the economy is growing.
While stock market fundamentals are strong, we are becoming overdue for a correction. Barring any unforeseen events, however, we remain positive on stocks. The economy is expanding, inflation and interest rates are low, and corporate earnings are expected to continue to grow. These are all positives. Like 2013, bonds will likely struggle this year as interest rates move to more normal levels. Many of the issues that weighed on the economy a few years ago, such as housing and Europe, have largely gone away. In the short term, it is impossible to predict market moves, but conditions are in place for stocks to do well.
As always, please feel free to contact us if we can do anything for you. Also remember that you can request an updated copy of our Form ADV that contains information about our company that is on file with the SEC.