Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
For the first time all year, every single one of the Dow Jones Industrial Average's (DJINDICES: ^DJI ) 30 components finished higher last week. What does that mean for the market and the future of the index?
Most likely, nothing.
The holiday-shortened trading week gave us very little economic data to cause any type of volatility, and the spread between the best and worst performers on the Dow was 4 percentage points, with Cisco (NASDAQ: CSCO ) gaining 4.21% and Boeing (NYSE: BA ) climbing by 0.16%.
But why did everything on the Dow increase this past week? There's probably not a single answer, but one big reason is probably a lack of uncertainty within the markets. Investors dislike uncertainty, and as we head into 2014, a number of lingering issues have been taken care of. Congressional compromises on the budget and debt ceiling gave us a budget deal that puts another government shutdown out of the picture for another few years. And we now have some clarity on the Federal Reserve's tapering plans. The central bank announced on Dec. 18 that it will reduce its monthly bond-buying from $85 billion to $75 billion starting in January. This is, first and foremost, a sign that the Fed sees a strengthening U.S. economy. And that means corporate America should continue to see strong growth while Americans feel better about where the country is heading.
In fact, a recent Associated Press poll found that 49% of Americans believe their fortunes will improve in 2014, while only 14% believe they will get worse and 34% don't believe much will change. That's an improvement over the same poll in 2009, when 46% felt 2010 would be better than the past year, while 20% felt it would be worse and 32% felt it would stay the same.
That slight increase may not seem like much, but when you consider that consumers drive 70% of all U.S. economic activity, even that 3% jump can make a huge difference.
The stock markets are at all-time highs, real estate prices are climbing, and Americans believe for the most part that things will get better -- or at least not get worse. Uncertainty is on the decline, and investors have a good idea of what the Fed will do over the next year. But while that all sounds good and it would be easy to predict another great year in 2014, things can always change. We should expect at least a few bumps in the road during the coming 12 months.
Even so, just remember how dark the past few years have been. We've managed to come out of that dark time better off. So no matter what happens in 2014, don't panic and hold your investing course.
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