US stocks climb to records as S&P 500 has best year since 1997

Staff Writer
Columbus CEO

(c) 2013, Bloomberg News.

NEW YORK — U.S. stocks rose to records, with the Standard & Poor's 500 Index posting its biggest annual advance since 1997, as gains in consumer confidence and housing prices bolstered confidence in the world's largest economy.

The S&P 500 added 0.4 percent to an all-time high of 1,848.35 at 4 p.m. in New York. The equities benchmark has jumped 30 percent this year. The Dow Jones Industrial Average increased 72.44 points, or 0.4 percent, to 16,576.73, also a record.

"It's been a terrific year and people should be very satisfied about how the market has reacted," Robert Pavlik, chief market strategist at Banyan Partners, which manages $4.5 billion, said in a phone interview. "You can question it all you want if there was enough reasoning behind the 30 percent gain this year. Lots of things went on this year, but you're starting to tack this one on and put it in the book and be thankful."

The S&P 500 gained 2.4 percent in December, its fourth straight monthly advance. The gauge climbed 3.7 percent from Dec. 13 through Dec. 27, its biggest two-week rally since July, as the Federal Reserve announced plans to reduce the pace of bond buying amid faster-than-estimated economic growth. Three rounds of Fed stimulus have sent the S&P 500 up 173 percent from a 12-year low in 2009.

Data on Tuesday showed the Conference Board's index of consumer confidence in the U.S. rose to 78.1 in December from 72 in the prior month, the New York-based private research group said. The median projection in a Bloomberg survey of economists called for a reading of 76. A separate report showed home prices in 20 U.S. cities rose in October from a year ago by the most in more than seven years, signaling the real-estate rebound will keep bolstering household wealth in 2014.

The Dow has rallied 27 percent this year, its best performance since 1995. IBM is the only member of the 30-stock gauge headed for an annual decline, even as the world's largest provider of computing services boosted its dividend and added about $20 billion to its buyback plan.

Asset purchases by the Bank of Japan and the Fed have supported the global economy and helped to increase the market value of world stocks by $9.5 trillion this year. Speculation over a reduction in bond buying whipsawed financial markets after May 22, when Fed Chairman Ben Bernanke first indicated cuts to the central bank's stimulus program could start this year. The S&P 500 has advanced 12 percent since then.

This year's rally in stocks sent the S&P 500's valuation up more than 20 percent to 17.4 times reported earnings, the highest since 2010.

All 10 main industries in the S&P 500 have advanced this year, led by a 41 percent gain in consumer-discretionary companies. Through yesterday, 458 stocks in the index were up for the year, the broadest rally in data going back to 1990. Phone companies have the weakest performance, with a 6.4 percent increase. The increase is the best showing for the worst- performing group since 1995, data compiled by Bloomberg show.

Netflix has soared 296 percent in 2013 for the biggest gain in the S&P 500, as the world's largest video-subscription company reported earnings that surged more than analysts forecast. Micron Technology has rallied 243 percent, making it the second-best performer. The chipmaker is projected to return to a profit in the fiscal year ending in August. Best Buy has climbed 236 percent, rebounding after a 49 percent drop in 2012.

Newmont Mining has plunged 50 percent for the biggest annual loss in the S&P 500. The price of gold is down 28 percent in 2013, heading for its biggest decline in three decades. Cliffs Natural Resources, the second-worst performer in the index, has lost 32 percent.

Equity returns will slow next year, Wall Street strategists forecast. The S&P 500 will end 2014 at 1,950, according to the average of 20 estimates compiled by Bloomberg. That represents a 5.6 percent gain over the next 12 months.

"I don't think the market is overvalued, but will it continue this nice smooth ascent with almost no volatility?" Tobias Levkovich, chief U.S. equity strategist at Citigroup, said in an interview with Betty Liu on Bloomberg Television's "In the Loop with Betty Liu." "We will see a more volatile year that might scare off some investors, which might be good. Sentiment is getting way too positive. It's beyond complacency."


With assistance from Jonathan Morgan in Frankfurt