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Stocks hesitate as expected after a strong rally

F&M Investment Services - Raymond James - Clarksville, TNClarksville, TN – U.S. stocks had a great run in 2013 with major indices up 27% to 38%, but that momentum lost a bit of steam in January and the first hours of February trading.

The pullback toward the end of January seems to reflect investor concern about turmoil in emerging markets in general, and specifically, about a drop in Argentina’s currency and a deceleration of Chinese manufacturing.

Frazier Allen
Frazier Allen

In other news, American manufacturing also retreated in January, expanding at a slower pace than in previous months, according to the Institute for Supply Management’s factory index.

And the Federal Reserve announced that it would trim $10 billion from its bond-buying program. Janet Yellen, who was confirmed as Ben Bernanke’s successor, officially took the helm at the central bank and is expected to continue the gradual tapering, barring any major changes to the economic and jobs outlook.

In addition, the government estimated that real gross domestic product grew at an annualized rate of 3.2% from the third to the fourth quarter of 2013, buoyed by a rise in consumer spending. Of course, that data is subject to revision, so we’ll continue to monitor this and any other economic data that could affect the markets.

Market watchers seem to agree that a softening was to be expected given the years-long rally among the stock markets, where we’ve seen the S&P 500 gain as much as 173% since its 2009 low. After last year’s great run, the S&P 500 declined 3.6%, the Dow fell 5.3%, and the Nasdaq slipped 1.7% in January.

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Jeff Saut, Raymond James chief investment strategist, explained that the history of 40%+ rallies, like those seen since the June 2012 lows, is tactically followed by a pullback of between 5% and 7% over the next three months, and a 10% to 12% pullback sometime over the next 12 months. He cautions, though, that those numbers should be seen in context of the secular bull market that has brought gains in the double and triple digits over the past five years.

Despite looking for a pullback to begin in late-January or early-February, his outlook for 2014 remains optimistic as he notes, “Things are getting better, just about on all fronts.”

Please feel free to reach out to me if you have any questions about the economy, the financial markets and how they may impact your long-term financial plan. I look forward to speaking with you.

Frazier Allen
Frazier Allenhttp://www.raymondjames.com/frazierallen
Frazier Allen, WMS, CRPS, Financial Advisor with F&M Bank 50 Franklin Street | Clarksville, TN 37040 | 931-553-2048

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