2013 Reminiscent of 1998 – Strong Year for Domestic Stocks

in Market Commentary by

Market Digest – Week Ending 1/3

Stocks ended the year triumphantly with the S&P 500 closing at an all-time high and finishing the year with a 32.4% total return, its best since 1997. The New Year got off to a lackluster start, however, as stocks finished the first two trading days in the red. Weak manufacturing activity in China pushed emerging markets stocks lower.

Weekly Returns:

S&P 500: 1,831 (-0.5%)
FTSE All-World ex-US: (-1.1%)
US 10 Year Treasury Yield: 2.99% (-0.01%)
Gold: $1,237 (+1.9%)
USD/EUR: $1.359 (-1.1%)

Major Events:   

  • Monday – The FAA selected six sites to test unmanned aircraft for the purpose of safely expanding drone use for non-military purposes.
  • Tuesday –Gold prices fell, finishing the year down 28 percent, its worst year since 1981.
  • Thursday – Chinese PMI manufacturing data came in below expectations.
  • Friday- PIMCO’s Total Return fund announced redemptions of $41.1 billion for the year as investors shunned bonds and punished the fund for lackluster performance in 2013.
  • Friday – Ben Bernanke said the Fed remains committed to accommodative monetary policy. He also said that the economy has made considerable progress but the recovery “remains incomplete”.

Our Take:

2013 was a great year for investors, particularly those heavily weighted in US stocks. In many ways, it reminds us of 1998. US stocks were the best performing asset class. Then, like now, gains were driven by Technology and Health Care, including a handful of still small but growing internet companies.

Not much was made of it, but 2013 was also great year to be a .com company, even if no one uses it in their actual name anymore. Netflix was up over 300%, Yelp 250%, Zillow 200%, Groupon 150%, Zynga 70%, and so on.

One difference was that 1998 featured a sharp, scary correction while 2013 was smooth sailing all year long. That correction was sparked by the Russian Ruble crisis, which crushed emerging market stocks. Interestingly, emerging markets are again in the doghouse, now driven primarily by concerns of a slowdown in China.

In 1999, tech stocks would shoot to unworldly heights, emerging markets stocks rebounded and bonds were big losers. But the aftermath in 2000 proved more devastating to retail investors than even the sub-prime crisis from five years ago. Does this mean it is time to dump internet stocks? No. It just means diversification remains a good idea and a new tax year may mark the perfect time to re-evaluate if it is time to pare back some of your big winners.

 
 

The following two tabs change content below.
Craig Birk, CFP®

Craig Birk, CFP®

Craig Birk is a member of the Personal Capital Advisors Investment Committee. He also serves as Vice President of Portfolio Management. Prior to Personal Capital Advisors, he was an integral leader within the portfolio management team at Fisher Investments. During Craig’s time there, the company increased assets under management from $1.5 billion under management to over $40 billion. His responsibilities included risk management, portfolio implementation oversight, and management of all securities and capital markets research analysts. Mr. Birk graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.

Leave a Reply

Your email address will not be published.

Disclaimer. This communication and all data are for informational purposes only and do not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation. Third party data is obtained from sources believed to be reliable. However, PCAC cannot guarantee that data's currency, accuracy, timeliness, completeness or fitness for any particular purpose. Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimate, projections and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. Past performance is not a guarantee of future return, nor is it necessarily indicative of future performance. Keep in mind investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.