S&P 500 on its way to biggest gain in 16 years

December 15, 2013

By: Ali Masud

Shares in the S&P 500 have climbed in the final two months of the year 86% of the time since 1928. If history is any indication, S&P 500 will be on its way to hitting 1,860, approximately 20% higher than the record 1565.65 set in 2007. The return has been positive in November and December every year since the bull market started in 2009 even though earnings growth is slowing and the Federal Reserve is planning to taper.  A total of 447 stocks in the index are up this year and 80% of those are trading above their 50-day moving averages according to Bloomberg.

The S&P 500 is up more than 160% since 2009 mostly due to the Fed’s purchase of bonds, keeping the interest rates low and helping growth. With the government shutdown and fiscal cliff fears, the Central bank is expected to delay its tapering until March and continued to purchase $85 billion in bonds every month, further helping the growth in the equities.

With such gains, fears of a bubble market naturally form as some of the economic data coming from the U.S does not support the gains being seen in the equity market. Equity valuations have increased 18% this year even though the U.S GDP is projected to expand by only 1.6%, about half that of 2012. While there might be fears of a bubble market and lack of evidence to support the gains, the fact remains that there is an uptrend in the market right now and often, the markets get caught up in the momentum. Only time can tell whether the gains materialize or the slightest tremor in the U.S government will send it crashing back down.

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