Markets ended on a high on Tuesday to seal its best yearly performance in a period extending over nearly one and a half decades. Investors were able to look beyond concerns and focus on economic growth numbers and Fed stimulus measures through this year. Benchmarks ended on new highs on many occasions through 2013 and the last day of the year was no exception. Strong consumer confidence and housing data helped indices add decent gains on Tuesday, enough for them to clinch record highs.
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The Dow Jones Industrial Average (:DJI) added a decent 0.4% to close Tuesday’s session at 16,576.66. The Standard & Poor 500 (S&P 500) also gained 0.4% to close at 1,848.36. The Nasdaq Composite Index saw gains of 0.5%, helping it to move up to 4,176.59. The fear-gauge CBOE Volatility Index (:VIX) added 1.2% to close at 13.72. Volumes were expectedly low a day ahead of the new year. About 4.37 billion shares changed hands, lower than monthly average of 5.89 billion. For 63% shares that climbed on the New York Stock Exchange, 34% moved down.
Looking at Tuesday’s events, two positive economic numbers largely drove the markets higher. Consumer confidence improved and home prices improved, further underscoring the economy’s strength. The dismal Chicago PMI numbers hardly made any damage to the bullish sentiment on Tuesday.
The Conference Board reported that the Consumer Confidence Index had climbed from November’s 72.0 to 78.1 in December. The significant increase outpaced consensus estimates of a reading of 77. In fact, the data was a major positive as consumer confidence has rebounded to winning ways from the slump that occurred in November.
Providing further details, Lynn Franco, director of Economic Indicators at The Conference Board, said: “Consumer confidence rebounded in December and is now close to pre-government shutdown levels (September 2013, 80.2). Sentiment regarding current conditions increased to a 5 ½ year high (April 2008, 81.9), with consumers attributing the improvement to more favorable economic and labor market conditions”.
The housing data also brought cheer to the markets. The S&P/Case Shiller survey noted the strongest gains for U.S. single-family home prices in over seven years. The S&P/Case-Shiller home price index jumped 13.6% year on year in October. Prices in cities gained 0.2% in October from the prior month.
The housing stocks cheered the news and SPDR S&P Homebuilders ETF (XHB) rose 0.5%. Among the housing stocks, KB Home (NYSE:KBH), PulteGroup, Inc. (NYSE:PHM), DR Horton Inc. (NYSE:DHI), Hovnanian Enterprises Inc. (NYSE:HOV), Hovnanian Enterprises Inc. (NYSE:HOV) and Toll Brothers Inc. (NYSE:TOL) gained 0.8%, 1.2%, 1.8%, 2.8%, 2.4% and 0.5%, respectively.
However, the Chicago PMI numbers were disappointing as the Survey by Institute for Supply Management-Chicago noted that Chicago Business Barometer declined to 59.1 in November from October’s reading of 63. The dismal readings however hardly made any change to the bullish mood as investors chose to focus on the positives.
In fact, benchmarks have negated certain concerns through this year to constantly hit new record highs. The Dow hit its 52nd record high this year on Dec 31, signing off the year with gains of 26.5%. This marked the blue-chip index’s best yearly performance since 1995. The S&P 500 gained 29.6% for the year, its record best since 1997. The Nasdaq outperformed the fellow benchmarks as it jumped 38.3% in 2013, notching its best annual performance since 2009.
The stock market sidestepped the "fiscal cliff" at the start of the year, the Boston Marathon bombings, a near war with Syria, a government shutdown and a jump in yields on long-term government bonds to their highest level since July 2011.
The gains have come all through this year negating a number of hurdles. Despite the fiscal cliff, political impasse and the 16-day partial government shutdown, markets have largely negated concerns and focused on economic growth numbers that eventually led the Federal Reserve to decide to start tapering its economic stimulus. The central bank’s bond buyback plan had played big role in keeping the bullish sentiment in the equity markets alive. Benchmarks also soared during the last couple of weeks of this year, when it comfortably came to terms with Fed’s taper decision.
The central bank had announced its decision following the conclusion of the Federal Open Market Committee meeting on Dec 18 to start tapering its $85 billion bond buyback plan. The move will reduce bond repurchases by $10 billion, bringing monetary stimulus to $75 billion a month from Jan 2014. At the same time, the Fed also indicated that the key interest rate would continue to remain at a record low for a longer period than what was promised previously.