Financial markets: Six highlights -- and absurdities -- of 2013
Wall Street had plenty of reasons to think 2013 would go miserably for the stock market — what with a lackluster global economy, the U.S. government shutdown, Syria’s civil war, the Obamacare fiasco and Miley Cyrus.
Instead, we’re on track for a 29% gain in the Standard & Poor’s 500 index, which would be its best annual showing since 1997.
So the highlight of the year for many Americans will be the repair job on their retirement savings accounts.
But taking a broader view, here are six 2013 market memories that should endure:
• Ma and Pa come back to stocks. But so far, it’s a creep, not a crush.
For most of the period after the 2008-09 financial meltdown, many small investors continued to abandon the equity market — even as share prices rebounded.
That finally changed in 2013, at least as measured by cash inflows to conventional mutual funds. Stock funds took in a net $134 billion in the first 10 months of this year, as new purchases surpassed redemptions for the first time since 2007, data show.
But pessimists who choose to see the turn in sentiment as a sure sign of a U.S. market peak — i.e., the “dumb” money coming late — may need a math refresher.
First, this year’s inflow to stock funds recoups just 25% of the net $536 billion in redemptions from 2008 through 2012. It’s no deluge.
Second, U.S. investors are still mostly ignoring domestic stock funds in favor of foreign funds, a trend for the last nine years. Of the $134-billion cash inflow to funds through October, just $21 billion went to domestic funds. The rest went to foreign portfolios.
Certainly, some of the money that used to reside in U.S. stock mutual funds has shifted to more nimble exchange-traded funds.
But if cash is just beginning to flow into domestic mutual funds again, that could open a new phase of the bull market. Remember: When cash poured into the funds during the late 1990s it helped power that decade’s wild bull run.
With $5.4 trillion in assets, domestic stock funds remain a potent market force. They’d become more so if cash inflows accelerated.
• Ben S. Bernanke cements his position as Greatest Fed Chairman Ever.
Really? you say. Well, if Bernanke actually dares to suppose that’s true, no one can yet say he’s wrong.
Think about it: The Federal Reserve went all out after the crash of 2008 to pump unprecedented sums into the financial system and support the economy — while for much of that period Congress and the White House were unable to agree on the color of the sky, and Europe and Japan dithered.
Critics kept saying the $3 trillion in Fed money printing would lead to an inflationary bust. Instead, the U.S. economy has continued to grow, albeit modestly. Same for employment. Home and car sales have resurged. And inflation remains extraordinarily low.
Now, as Bernanke’s term as chairman ends, the Fed this month took the first step toward easing back on its financial stimulus. And instead of freaking, the stock market celebrated with new highs, in an apparent vote of confidence on the economy.
If Bernanke’s presumed successor, Janet L. Yellen, can continue the stimulus “tapering” while the economy expands further in 2014, the biggest winner may be Bernanke’s legacy.
• Dot-com mania 2.0 engulfs the stock market, enriches Silicon Valley and terrorizes bears.
It really wasn’t 1999 all over again in tech stocks, but it felt that way at times. Internet-related companies captivated investors — and the financial media — in 2013, and the stocks scored hefty gains as money chased them.
Movie-streaming service Netflix Inc. is up 297% year to date. Shares of Facebook Inc. are up 108%, and Twitter Inc. has surged 145% from its initial public offering price.
Some older Net favorites also zoomed again, led by Google Inc., up 58%, and Amazon.com Inc., up 59%.
What sparked this fire? As confidence in the stock market grew, so did investors’ willingness to take risks. And in a generally slow-growing economy, the hype over booming social media, in particular, proved irresistible to many investors — and deadly to bears who screamed “bubble!”
Even if there is a new bubble in tech, it’s nowhere near the size and scope of the late-1990s bubble that set the stage for the Nasdaq’s horrendous 2000-02 crash.
Consider: The first dot-com mania drove the Nasdaq index up a stunning 86% in 1999, then an additional 24% in the first few months of 2000, to the ultimate peak of 5,048 on March 10, 2000.
This year, the Nasdaq is up 38% so far. And at Friday’s close of 4,156, it’s still 18% below the 2000 peak.
What’s more, even as many Net-related shares soared, it was a rough year for some of the old-guard tech giants. IBM Corp. is down 3% for the year amid deepening worries about weak sales. Apple Inc.’s shares have snapped back in recent months, but they’ve barely recouped their first-half losses. The stock is up just 5% for the year.
Some experts say 2013 was all sizzle, no steak for the tech business: “Not a single breakthrough product was unveiled” this year, tech analyst Christopher Mims lamented on the Atlantic’s website this week.
At least that sets a low bar for 2014.
• Gold’s winning streak fails to make it into the teen years as the metal’s price slumps.
What powered stocks in 2013 also ended a spectacular 12-year bull run for gold: As fear of another global economic bust receded, some investors abandoned havens in favor of what was hot and hopeful — especially stocks.
Gold bullion was down 27% year to date through Friday, to $1,216 an ounce. The last time it lost ground in a calendar year was 2000, when it ended at $274.
But gold’s all-time high of $1,889 was reached more than two years ago, in the summer of 2011. After eking out a modest net gain in 2012, bullion crumbled this year.
The metal’s greatest fans still see it as the best hiding place for money. But many investors increasingly wonder what they should be hiding from — if the global economy isn’t collapsing, the U.S. housing crisis is over, inflation isn’t accelerating, and the dollar isn’t diving.
Perhaps worse for gold, this year it faced the rise of a rival that has fascinated some global investors, even if they may not entirely understand it: Bitcoin. The digital currency isn’t backed by any central bank, and so, in theory, can’t be manipulated by any central bank.
While gold tanked, the market value of a bitcoin has soared from about $13 at the start of 2013 to more than $700 now.
Of course, gold will always be prettier than a bitcoin — unless your definition of beauty is an invisible electronic pulse.
• JPMorgan Chase & Co. and chief Jamie Dimon provide unrelenting comic relief on Wall Street.
America’s biggest bank repeatedly found itself a Main Street punching bag and Wall Street punch line this year.
The bank agreed in September to shell out more than $900 million in penalties related to its “London Whale” derivatives trading fiasco in 2012, a mess that an uninformed Dimon had initially described as a “tempest in a teapot.”
Then, JPMorgan in November was socked with a global record $13 billion in fines related to its sale of toxic mortgages leading up to the housing crash.
The same month, the bank went on Twitter with an earnest attempt to solicit and answer questions from aspiring financiers. Instead, the “#AskJPM” session turned into an all-out snarkfest, with questions like this gem: “Did you always want to be part of a vast, corrupt criminal enterprise, or did you ‘break bad’?”
Finally, Dimon ended the year with a family-photo Christmas card that seemed designed to infuriate what’s left of the Occupy Wall Street movement: There on the photo is Dimon appearing to play tennis in an opulent living room with his family laughing it up.
Yet despite everything, the bank’s shares are up 32% in 2013, and this week they hit their highest level since 2000. So the last laugh goes to ... JPMorgan stockholders.
• Two extremely rich guys battle it out over a milkshake company.
Or something like that.
Wall Street has openly debated for years whether Los Angeles-based Herbalife Ltd., the nutritional supplements company, was a legitimate growth business or a pyramid scheme.
A year ago, hedge fund manager Bill Ackman announced that he had heavily “shorted” Herbalife — betting that the stock would collapse — and presented a long report alleging fraudulent practices.
But after diving as low as $26 late last year, Herbalife shares quickly rebounded — and then rocketed through 2013 as another investing titan, Carl Icahn, rode to the company’s defense and snapped up 17% of the stock.
So far, Camp Icahn has prevailed, big time: Herbalife shares closed at $78.28 on Friday, up 138% for the year. But despite Ackman’s huge losses on his bearish bet, he has vowed to come forward in 2014 with more evidence discrediting the company.
Herbalife has become a good metaphor for the stock market in 2013: It was just a bad, bad year to be bearish, no matter how sound your reasoning might have been.
