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2013 was the year of unstoppable stocks


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A STOCK RALLY DOESN’T NEED TO BE LOVED

Signs of euphoria were largely absent from the stock market, despite the big gains. In fact, the market seemed out of step with a fragile economy.

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The pace of mergers and acquisitions lagged as executives remained unwilling to strike large deals amid uncertainty about the economy. Corporate profits rose, but largely due to cost-cutting, not higher sales. Hiring picked up, but at a sluggish pace.

"I’ve never seen a near 30-percent year where investors are so unhappy," says Jonathan Golub, chief U.S. market strategist at RBC Capital Markets.

Investors put $77.6 billion into U.S. stock funds in the first 11 months of the year, according to Lipper fund data. The last time investors put more money into stocks than they took out was 2005. But the inflows were only a trickle compared with the $451 billion withdrawn from stock funds between 2006 and 2012.

THE IPO MARKET IS BACK

The number of initial public offerings rose to its highest level since before the recession in 2007, according to Dealogic data as of Dec. 17. It’s easier for companies to sell stocks in a climbing and steady market because investors are more confident they can make money.

The average IPO stock rose 35 percent in 2013, outperforming the S&P 500, according Renaissance Capital data.

Hotel chain Hilton Worldwide and social media site Twitter went public. In total, companies sold $61 billion of stock in 2013, as of Dec. 17, an increase of 30 percent from 2012.

In the years that followed the financial crisis and the Great Recession, a volatile stock market made listing new companies more difficult, says Scott Cutler, head of global listings for the New York Stock Exchange. The smooth ascent of stocks in 2013 ensured that the market for IPOs stayed open all year.


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"I expect the environment to continue as we have seen it in 2013," Cutler says. "Investors have been making money in equities again."

CHANGE IS CONSTANT

The 30-member Dow got a makeover in September, swapping out three old members for three new ones. It was the biggest shake-up for the blue-chip index in almost a decade. Out went aluminum producer Alcoa, Bank of America and Hewlett-Packard. In came Nike, Goldman Sachs and Visa. Despite its name, the Dow Jones industrial average is no longer dominated by industrial companies and now contains financial firms like JPMorgan and Travelers, as well as retailers like Home Depot and Wal-Mart, reflecting the changing nature of the U.S. economy.

EUROPE IS GETTING BETTER

Jitters about Europe subsided. In 2012, concerns about the health of the banking systems in Spain and Italy weighed on U.S. stock markets. In 2013, despite some flashbacks — worrying Italian elections in February and the collapse of the Cypriot banking system in March — investors didn’t panic.

THERE’S ALWAYS A GLITCH IN THE SYSTEM

A technical glitch halted trading on the Nasdaq for three hours in August, embarrassing the stock exchange that hosts the biggest names in technology, including Apple, Microsoft and Google. Though less alarming than the "flash crash" of 2010 that set off a stock market plunge, the glitch once again raised questions about the pitfalls of electronic trading, which now dominates stock exchanges.

The glitch in August was the most notable of 2013 for the Nasdaq, but not the only one. There were brief outages in September and November.

DIVIDENDS MATTER

Investors also focused on dividends as bond yields started 2013 close to record lows.

The S&P 500 dividend yield, which measures the dividend payment on stocks versus their price, started the year at 2.17 percent, higher than the 1.76 percent yield on 10-year Treasury notes.

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