The Stock Market Thrives On Uncertainty
It is said the stock market climbs a wall of worry. Well, it was a really, really, big wall this year.
Financial commentator Greg Heberlein groups the worries into three categories: Economic, Political and Market.
Economic growth was supposed to be tame, and indeed it was. Inflation and gross domestic product numbers were tepid.
Congress agreed to cut about $100 billion out the U.S. budget this year, another big economic negative.
The outlook for corporate-profit increases was dim, helping dampen investor sentiment.
Wage-earners faced a significant increase in payroll taxes, from 4.2 percent to 6.2 percent. That not only was expected to restrict economic growth, but restrain individuals from increasing their stock market investments.
The political environment was extremely negative, culminating with the government shutdown in October.
The turmoil over Obamacare – would it be upheld? Could the forces against Obamacare alter or delay it? Would it cost too much? Would the system even work? – all created more uncertainty.
Ongoing disputes over the farm and immigration bills fostered additional concerns.
Opposition, both political and corporate, to the Obama agenda added strain to stock-market bulls. Political gridlock alone should have derailed stocks.
From a market perspective, it would be hard for the stocks to post a fifth straight year of gains.
Many authoritative market watchers said it wouldn’t happen and warned a big correction was imminent.
Stocks were up 13 percent in 2012. Who expected a repeat? The forecast average was for a 10 percent gain in 2013. Small investors, still stung by the 2008 crash, still seemed reluctant to return to stocks. And the Federal Reserve was expected by many to end its easy-money policies that had made stocks that much easier to pay for.
So what happened?
It’s been an outstanding year for stocks.
Not only did the Dow Jones cross the 14,000 mark, it surpassed 15,000 and 16,000 as well.
By mid-December, the market posted 52 record highs for 2013. Stock-market bears, the ones betting against gains, were crushed.
Perhaps the year was encapsulated by a well-known trading strategy.
More often than not, short-term investors who “sell in May and go away” until Halloween can avoid losses. In recent years, the market has retreated 7 percent in that period.
In 2013, the opposite happened. In the May-October period alone, the market set 17 record highs.
Slow-and-steady investors climbed the wall of worry with ease.
So stick to your long term investing strategy, and don't worry about all those worries.