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 While the market will likely enter January quietly, with many
traders still out for the holidays and few major catalysts, the
upward trend is seen continuing next week, especially in some of
2013's high-flying names.
Economic growth is expected to accelerate next year, boosting
employment and consumer purchasing power. But with markets
repeatedly notching all-time highs, that may not translate to market
gains as dramatically as in 2013.
"There's a pervasive feeling that the economy is getting better, and
the Fed is still on the market's side after saying it would keep
rates low," said Donald Selkin, chief market strategist at National
Securities in New York.
"However, while new money will still be flowing into stocks next
year, probably we'll see less money come in. There's little chance
of another 30 percent gain or so next year."
The S&P 500 <.SPX> has risen 29 percent so far in 2013, its best
annual performance since 1997. The Dow Jones industrial average <.DJI>
is up 26 percent while the Nasdaq is up nearly 38 percent.
The gains have been widespread, with all 10 S&P 500 sectors higher
on the year. The weakest group, telecoms <.SPLRCL>, rose 6.5 percent
while consumer discretionary <.SPLRCD> led the year with a gain of
40 percent.
One of the market's biggest boosts this year — the Federal
Reserve's stimulus program — will not be as strong a factor after
the central bank announced a slowing of the program in December. The
Fed beginning in January will buy $75 billion in Treasuries and
mortgage-backed bonds per month, down from $85 billion, and Fed
Chairman Ben Bernanke, whose term expires on January 31, suggested
the U.S. central bank could continue to slowly reduce that stimulus
throughout 2014.
The latest Reuters poll showed analysts expect the S&P 500 to rise
to 1,925 points by the end of 2014, which represents a rise of 4.5
percent from current levels.
Subscription video company Netflix Inc <NFLX.O> was the S&P's
strongest performer in 2013, with a jump of almost 300 percent,
followed by electronics retailer Best Buy Co Inc <BBY.N> and
semiconductor maker Micron Tech <MU.O>, both of which climbed nearly
240 percent. Tesla Motors <TSLA.O> was another standout, soaring 346
percent, while Facebook Inc <FB.O> more than doubled.
These names could see further upside next week thanks to "window
dressing," a practice in which investors buy securities with big
gains to improve the appearance of their holdings before presenting
the results to clients. The 2013 year will close out on Tuesday,
with the market closed on Wednesday for the New Year's Day holiday.
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"Consumer discretionary and tech names have driven the market over
the past 12 months, so it wouldn't surprise me to see continued
upside on them next week," said Jake Dollarhide, chief executive of
Longbow Asset Management in Tulsa, Oklahoma.
However, Dollarhide said the names were "priced for perfection" and
vulnerable to pullbacks next year.
"There won't be a sudden 'let's sell Micron and Netflix' movement,
but if profit growth slows or a conference call doesn't go well,
absolutely you could see a 20 to 30 percent selloff after doubling
this year," he said.
The fourth-quarter earnings season won't start in earnest until the
second week of January, but there will be a few clues into the
economy's strength coming out next week, with data on consumer
confidence and manufacturing.
Next week will also see reads on the housing market with November
pending home sales on tap for Monday and the Case/Shiller report on
October home prices on Tuesday. The housing sector has been in focus
as U.S. benchmark Treasury yields rose to two-year highs, which
could put pressure on mortgage rates, which are typically driven by
the yield on the 10-year Treasury note.
"If yields stay this high, I would consider that both a technical
and psychological negative for markets," said Mark Grant, managing
director at Southwest Securities in Fort Lauderdale.
Pending home sales, or sales which are in contract but not yet
closed, are seen rising 1 percent while the October home prices are
expected to rise 0.8 percent.
In the latest week, the Dow rose 1.6 percent while the S&P was up
1.3 percent and the Nasdaq rose 1.3 percent.
(Editing by Leslie Adler)
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