Oil, the Federal Reserve and an expanding economy set the tone for US stocks in 2014 as the Standard & Poor’s 500 Index rallied to unprecedented highs and extended the bull market rally past 200%.
Oil, the Federal Reserve and an expanding economy set the tone for US stocks in 2014, as the Standard & Poor’s 500 Index rallied to unprecedented highs and extended the bull market rally past 200%.
The S&P 500 closed 53 times at a record and the Dow Jones Industrial Average climbed above 18,000 as accelerating growth fuelled optimism in the economy and accommodative central banks sent risk-seeking investors into equities. Energy shares tumbled and airline stocks soared as the largest US crude output in three decades and Opec’s refusal to cut production led to a 46% plunge in oil prices.
After last year’s 30% rally in the S&P 500, “it’s tremendous to be somewhere up in the double digits,” Richard Sichel, chief investment officer at Philadelphia Trust Co, which oversees $2bn, said. “Stock investors should be very happy about having a follow-through like that. There’s optimism about the economy, and lower gas prices helped as far as consumer confidence.”
The S&P 500 rose 11% to 2,058.90 after gaining in 2013 by the most since 1997. While the S&P 500’s 1% loss on December 31 left the index down 0.4% for the month, breaking a streak of six straight December gains, the index completed its third straight annual advance of more than 10% for only the third time.
The Dow added 7.5% to 17,823.07, slipping below 18,000 on the final two days of trading. The Russell 2000 Index of small companies climbed 3.5%, while the Nasdaq Composite Index advanced 13%.
European shares advanced a third year, while Chinese equities had the best performance since 2009 even as emerging market shares posted the first back-to-back annual loss in 12 years. West Texas Intermediate entered a bear market as futures tumbled to the lowest since 2009. The Bloomberg Dollar Spot Index climbed 11% for its best performance in data going back to 2005 and Treasuries returned the most in three years.
Obstacles ranging from violence in the Ukraine to the Ebola outbreak and slowing economies in Europe and China threatened to derail US equities. None were a match for the Fed and the US economy.
The central bank pledged patience in raising interest rates while data showed the economy expanded the most in the third quarter since 2003. American employers hired more people in November than at any time in almost three years and consumers got a boost from lower gasoline prices after WTI fell to $53.27 a barrel.
The biggest bull market since the 1990s powered higher as $1.1tn was added to American share values and the S&P 500 overcame five separate declines of 4% or more. The gauge never once fell more than three straight times, a first in data compiled by Bloomberg going back to 2000.
For a fourth consecutive year, turbulence abated in the American equity market. The Chicago Board Options Exchange Volatility Index averaging 14.17 over 250 market days. That’s down from 14.23 in 2013 and less than half the level in 2009, the first year of the bull market.
An average of 6.4bn shares changed hands each day in all US equities, up about 3% from 2013 for the first gain since at least 2009. About $258bn of stock traded each day, up 17% from a year earlier, reflecting higher prices for equities.
While the S&P 500 capped a third straight annual advance, the MSCI All-Country World Index excluding the US sank 6.3% as the dollar strengthened against its major peers and as oil’s slump torpedoed energy-industry stocks around the world and squeezed government budgets in producing nations.
The decline in oil prices kept a lid on inflation, boosting Treasuries to the biggest returns since 2011, while yields on 10-year bonds from Germany to Italy and Spain fell to records.
The Bloomberg Commodities Index plunged 17% for a fourth straight slide. Copper capped the biggest annual loss in three years amid signs of an economic slowdown in China, the world’s largest metals consumer. Gold futures fell 1.5% to $1,184.10 an ounce for the first back-to-back declines since 1998.
The Bloomberg US Airline Index benefited from oil’s drop, surging 38% in the fourth quarter. Southwest Airlines Co posted the largest advance in the S&P 500 this year, soaring 125%, while Delta Air Lines climbed 79%. American Airlines Group led the Nasdaq 100 Index with a 112% rally.
Oil drillers have been on the other side of the run on crude, with a gauge of S&P producers slipping 14% in 2014. Thirty-three out of the 38 companies in the index fell. Rex Energy Corp plunged 74% for the group’s biggest loss. Transocean Ltd sank 63% for the worst performance in the S&P 500.
Utility stocks gained the most in 2014, rising 24% as low interest rates kept dividend yields averaging 3.3% competitive. Health-care companies, which posted the second- biggest advance at 23%, saw about four times as much market value created due to their larger weighting.
Technology companies had some of the biggest gains in the Dow this year, with Intel Corp rising 40% and Microsoft Corp jumping 24%. Consumer shares such as Home Depot, Walt Disney Co and Nike also rose at least 22% to lead the 30-stock gauge’s advance.
International Business Machines Corp was the worst performer for a second straight year, with a slump of 14%. The Russell recovered from a correction that saw it slip 11% over a five-week period starting in early September, and ended 2014 by surging 15% after reaching a one-year low on October 13.
It wasn’t a smooth year for small-cap stocks. The Russell 2000 lost 2.8% over a three-day period starting July 15 after the Fed expressed concern about valuations among social- media and biotech companies.
The Fed’s concern came after small-caps and Internet shares were the biggest victims of a market retreat early in the year as investors dumped the best performers of the bull market.
Small-cap shares also fell faster than the broader market during an August selloff sparked by concern that the plunge in oil prices and slowing growth in China and Europe would hurt the US economy.
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