A Fond Adieu to 2013—Your Weekly Update

What a wonderful year it’s been for the investing public! We’re slightly sorry to see this one go.

This week’s Update focuses on the interesting ride the past 12 months. Despite media and government-fed obstacles, America’s remarkable economic machine gained steam this past year and with it, the markets.

We think you’ll enjoy our quick take on 2013. Next week, we’ll discuss what we see in store for the coming year, but for now, let’s reflect, catch our breath, and enjoy the moment!

Happy New Year to all.

Our best,
Lee and Jeremy


This Week’s Quote:
“The best revenge is massive success.” ~ Frank Sinatra


JL Davis Thoughts This Week:

Instead of singing “Auld Lang Sine” to close 2013, we might better sing Sinatra’s “Fly Me To The Moon”. That’s the kind of year it has been. We’re delighted for our great friends and clients. It’s fun to look back at where we’ve been this past year.

Way back in January, the media predicted dire consequences due to the “fiscal cliff” deal and spending “sequester” (a rather silly way to enforce spending cuts that the government is still trying to correct). Pundits said to watch out for the dreaded “double dip”. The economy yawned and plodded on.

Along came the partial government shutdown, Congress’ “debt ceiling” debate, Federal Reserve “tapering”, and Obamacare implementation (?), creating the next series of news stories and supposed economic headwinds. For those who take the talking goblins on TV seriously, a plunge was near. In the end, all of this was a non-event for the economy and the markets.

In reality, cutting government spending freed more dollars for use by the taxpayers personally last year, as it always does. Those dollars remained in the private sector and appear to have helped the economy. Fortunately, 2013’s tax hikes were relatively minor in the scheme of things. “Tapering” –slowing down the Federal Reserve bond purchases-- has zero impact on real economic activity. As if to prove it, the government reported that consumer spending rose at a 5.7% annual rate in October and November, which was among the fastest spikes in the last decade.

That’s not all.

The economy accelerated. Real GDP (the nation’s gross domestic product) grew at an annual rate of 4.1% in the third quarter. Almost in lock step, the S&P 500 and Dow Jones Industrial Index rose to all-time record highs. It’s almost hard to remember that in January the Dow was at 13,104. Last Friday it closed at 16,478. Wow.

What about employment? The year began with the unemployment rate at 7.8%. At present, we seem about to break into the 6’s.
Inflation? What inflation? We’ll have more to say about it in the weeks to come, but 2013 happily saw little change in that department.

All in all, a very fine year, indeed. So what’s next for 2014?

Tune in next week!**


Market Week: December 30, 2013

The Markets

Strong economic reports, particularly one that suggested that businesses are confident enough in the future to spend more on equipment, helped drive the Dow and S&P 500 to new records yet again on light trading volumes. The enthusiasm for equities coupled with the Fed's recent decision to taper its bond purchases cut demand for bonds, sending the benchmark 10-year Treasury yield above 3% for the first time since mid-2011

Last Week's Headlines

• U.S. incomes increased 0.2% in November, rebounding from the previous month's decline. And as the holidays approached, consumer spending (especially on durable goods) rose 0.5% and the savings rate fell from 4.5% to 4.2%. The Bureau of Economic Analysis said November's figures put personal incomes 0.6% ahead of last November and personal consumption up 2.6% over the same time.
• A nearly 22% jump in orders for commercial aircraft was largely responsible for a 3.5% increase in durable goods orders in November. However, the Commerce Department said that even aside from the notoriously volatile aircraft sector, business spending on equipment rose 9.4% during the month.
• After the biggest one-month gain in decades, sales of new homes slid 2.1% in November. However, they were still 16.6% ahead of last November, and the Commerce Department's upward revisions to the previous three months' worth of figures suggested a stronger-than-anticipated rebound from a summer slowdown induced by higher mortgage rates.

Eye on the Week Ahead

Investors will be watching to see if the New Year's baby can extend the last two weeks' Santa Claus rally into 2014. Key dates and data releases: home prices (12/31); construction spending (1/2); auto sales (1/3).

Data sources: All information is based on sources deemed reliable, but no warranty or guarantee is made as to its accuracy or completeness. News items are based on reports from multiple commonly available international news sources (i.e., wire services) and are independently verified when necessary with secondary sources such as government agencies, corporate press releases, or trade organizations. Market data: U.S. Treasury (Treasury yields); WSJ Market Data Center (equities); Federal Reserve Board (Fed Funds target rate); U.S. Energy Information Administration/Bloomberg.com Market Data (oil spot price, WTI Cushing, OK); www.goldprice.org (spot gold, NY close); Oanda/FX Street (currency exchange rates). Neither the information nor any opinion expressed herein constitutes a solicitation for the purchase or sale of any securities, and should not be relied on as financial advice. Past performance is no guarantee of future results.

The Dow Jones Industrial Average (DJIA) is a price-weighted index composed of 30 widely traded blue-chip U.S. common stocks. The S&P 500 is a market-cap weighted index composed of the common stocks of 500 leading companies in leading industries of the U.S. economy. The NASDAQ Composite Index is a market-value weighted index of all common stocks listed on the NASDAQ stock exchange. The Russell 2000 is a market-cap weighted index composed of 2000 U.S. small-cap common stocks. The Global Dow is an equally weighted index of 150 widely traded blue-chip common stocks worldwide. Market indexes listed are unmanaged and are not available for direct investment.

Prepared by Lee Davis** and Broadridge Investor Communication Solutions, Inc. Copyright 2013