Stocks Fall Despite a Deal in Congress

in Market Commentary by

Market Digest – Week Ending 12/13

US stocks did something they have not done much of this year – decline. The S&P 500, which has risen in about 70% of weeks in 2013, fell 1.7%. Economic news was mixed and Congress made progress on budget issues even without a deadline immediately looming. Stock price declines were blamed on generic fear of Fed tapering, but bond prices were little changed.

Weekly Returns:

S&P 500: 1,775 (-1.7%)
FTSE All-World ex-US: (-2.0%)
US 10 Year Treasury Yield: 2.86% (+0.00%)
Gold: $1,237 (+0.7%)
USD/EUR: $1.374 (+0.3%)

Major Events:   

  • Monday – Fed member Richard Fisher said the central bank should begin winding down easy-money policies and give a clear timetable for reducing stimulus.
  • Monday – The Treasury Department announced it has sold its final shares of GM stock, which resulted in a $10 billion loss for taxpayers.
  • Tuesday – US regulatory agencies approved the “Volker” rule which limits how banks can trade for their own profit.
  • Tuesday – Congress reached a deal to eliminate some automatic spending cuts.
  • Wednesday – Stocks fell over 1% on the heels of the budget agreement as many speculated it will lead to a faster reduction in Fed bond purchases.
  • Thursday – Facebook shares rose 5% after it was announced the company will join the S&P 100 and S&P 500 indexes.
  • Thursday – North Korean leader Kim Jong Un had his uncle executed in an attempt to consolidate power and quell doubts about his leadership.

Our Take:

High flyers Facebook and Twitter had a good week, but others like Lululemon did not. When the market is going straight up, the high beta, high profile names tend to do the same. And that has pretty much been the case in 2013, especially in the Consumer Cyclical sector.

If markets take a breather, which is bound to happen sooner or later, the companies whose valuations have gotten too far ahead of reality may come back to earth. Quickly. Companies like Tesla, Lululemon, Chipotle and Priceline are exciting, but in contrast to 18 months ago, they now seem to reflect expectations of economic acceleration instead of anemic growth. They may get it, but we’ve seen these sector cycles before. The end of the year is always a good time to review if you are comfortable maintaining any concentrated positions you may have.

 

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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.

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