U.S. Stocks Climb to Record as S&P 500 Has Best Year Since 1997

Dec 31, 2013 5:13 pm ET

Dec. 31 (Bloomberg) -- U.S. equity gauges 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.

Phillips 66 paced gains in energy shares after saying Berkshire Hathaway Inc. will swap about $1.4 billion in shares for full ownership of the company’s pipeline-services business. Hertz Global Holdings Inc. climbed 10 percent to a record after saying it adopted a one-year shareholder-rights plan. Marvell Technology Group Ltd. rose 4.5 percent after KKR Fund Holdings disclosed a 6.8 percent stake in the chipmaker.

The S&P 500 added 0.4 percent to 1,848.36 at 4 p.m. in New York. The equities benchmark jumped 30 percent in 2013, ending the year at an all-time high for the first time since 1999. The Dow Jones Industrial Average increased 72.37 points, or 0.4 percent, to 16,576.66, also a record. About 4.5 billion shares changed hands on U.S. exchanges, 24 percent below the three- month average. U.S. equity markets are closed tomorrow.

“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 LLC, 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. 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.

Economic Reports

Data today 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 rallied 27 percent this year, its best performance since 1995. International Business Machines Corp. is the only member of the 30-stock gauge that declined, even as the world’s largest provider of computing services boosted its dividend and added about $20 billion to its buyback plan.

Central Banks

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 S. Bernanke first indicated cuts to the central bank’s stimulus program could start this year. The S&P 500 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 advanced this year, led by a 41 percent gain in consumer-discretionary companies. About 460 stocks in the index were up for the year, the broadest rally in data going back to 1990. Phone companies had the weakest performance, with a 6.5 percent increase. The increase is the best showing for the worst-performing group since 1995, data compiled by Bloomberg show.

2013 Performance

Netflix Inc. soared 298 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 Inc. 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 Co. climbed 237 percent, rebounding after a 49 percent drop in 2012.

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

‘More Volatile’

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 5.5 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 M Levkovich, chief U.S. equity strategist at Citigroup Inc., 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.”

The Chicago Board Options Exchange Volatility Index, the gauge of S&P 500 options known as the VIX, rose 1.2 percent to 13.72 today for a third straight day of increases. The gauge finished the year with a 24 percent drop, the largest decline since 2009.

Seven out of 10 main S&P 500 groups increased today, with energy shares adding 0.9 percent to pace gains.

Energy Companies

Phillips 66 climbed 3.2 percent to $77.13. Warren Buffett’s company will exchange about 19 million shares, Phillips 66 said in a regulatory filing. The specific number of shares Berkshire will pay for Phillips Specialty Products Inc. will be determined when the deal is completed, the energy company said.

Valero Energy Corp. advanced 3.6 percent to $50.40 and Marathon Petroleum Corp. added 3.7 percent to $91.73 for the largest gains in the S&P 500. Tesoro Corp. rallied 3.5 percent to $58.50 for the index’s third-biggest increase.

U.S. gasoline production jumped 4.3 percent to 9.72 million barrels a day in the week ended Dec. 20, the most in weekly data going back to 1982, the Energy Information Administration reported on Dec. 27. Refiners have ramped up operations to benefit from a flood of less-expensive domestic crude as U.S. oil output reached the highest level in 25 years.

American Express Co. rose the most in the Dow, adding 1.3 percent to $90.73 for a ninth day of gains that extended an all- time high.

‘Unusual’ Activity

Hertz climbed 10 percent to $28.62. The largest publicly traded U.S. rental-car company adopted the plan after observing “unusual and substantial activity” in its stock. The board voted unanimously for the plan, which Hertz said wasn’t adopted in response to any specific takeover bid or proposal to acquire the company, according to a statement.

Marvell Technology jumped 4.5 percent to $14.38. KKR Fund Holdings’ disclosure comes after two people familiar with knowledge of the matter said on Nov. 5 that KKR & Co. had acquired almost 5 percent of the computer chipmaker.

KKR sees the Hamilton, Bermuda-based company as undervalued and has discussed its holding with the company’s co-founders, Chief Executive Officer Sehat Sutardja and his brother Pantas, said one person, who asked not to be identified as the information is private.

Urban Outfitters fell 0.6 percent to $37.10. The clothing retailer was the only annual loss among consumer-discretionary shares in the index, dropping 5.7 percent this year.

--With assistance from Jonathan Morgan in Frankfurt. Editors: Jeff Sutherland, Jeremy Herron