Steve Schmitt, CFP, MBA, is Senior Vice President Investment Officer with Wells Fargo Advisors, LLC in Short Hills, N.J. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and separate nonbank affiliate of Wells Fargo & Company, No. 25 in the Fair360, formerly DiversityInc Top 50.
Many may not remember, but 2013 began in a much different state than it ended. We turned the calendar on 2013 with a worry that the fiscal cliff would not be averted and tax rates, which were increasing for everyone, would crimp consumer spending. Probably the biggest story of the year was that the concerns proved unjustified. With a few minutes left, a last-minute budget deal saved the day and the markets started roaring, never looking back regardless of the many obstacles we faced during 2013. In fact, by the end of the first quarter, even with the much feared sequester occurring (remember that), the Dow Jones Industrial Average and the S&P 500 had finally surpassed their October 2007 highs, reaching many new heights as time progressed. The Dow finished the year with a total gain of 25.4 percent, NASDAQ increased 34.6 percent (not back to 2000 peak levels yet), the S&P 500 went up 29.4 percent, gold fell 27.6 percent and oil rose 5.4 percent.
Holiday cheer came a bit early and was quite an impressive Santa Claus rally with the major averages taking on a significant gain during the final two weeks of the year. The announcement of a two-year budget plan and Fed tapering of monthly bond buying program, combined with an unexpected jump in gross domestic product (GDP) growth of 4.1 percent, was enough to put a smile on Wall Street. Fed Chairman Ben Bernanke’s farewell speech and probably good riddance after his highly tumultuous eight-year tenure as Fed chairman was very well thought out, reasonable and should provide a seamless transition to Janet Yellen. With the decrease in uncertainty over timing of Fed tapering behind us, along with a promise to keep interest rates low potentially through 2017, we are in good shape unless inflation kicks in too rapidly, which doesn’t seem the case thus far. There will continue to be a drag on global economies, ours included, as the financial system is still being reshaped by regulation and weaker than normal credit demand. Even so, equities could perform in the high-single-digit/low-double-digit range for 2014 with fixed income returns continuing to dwindle.
