Recap: Week Ending January 3, 2014

January 4, 2014

Global markets started the 2014 year off with selling pressure in equities and bonds and bid activity in metals. The selling seen at the start of the New Year comes after a mammoth rally in equities in US and around the world in 2013. Stock indices in the US hit new all time highs many times throughout the year. The bid activity in equities was seen as the US Federal Reserve’s bond buying program, Quantitative Easing, took center stage pushing interest rates lower and pumping up stocks with “cheap money.” The bid activity spread across global markets as a slew of equity markets closed higher on the year. The S&P500, which tracks the largest 500 companies listed on US exchanges, closed up 29.6% on the year. The past years performance of the S&P is the best since 1997 where it gained over 31% for the year. The Dow Jones Industrials, which tracks the 30 largest companies in the US, could not top the S&P run, only 26.5% for the year. This was the Dow’s best year since 1995. These gains are relatively small when compared to the tech heavy NASDAQ Composite and Small Cap Russell 2000 which gained 38.3% and 37% for the year respectively. This year was the best year for the NASDAQ since 2009 which is strongly bounced off the recession lows. For the Russell, this was its best yearly return since 2003. Overall, this was an incredible year for equity markets with many stocks entering levels which they have never seen. Markets were shaken up in the spring when the taper, or slow down of the Fed’s bond buy program was rumored. Following the announcement, US treasuries caught a nervous offer and was unable to hold any gains made for the year. The 30 year US treasury fell nearly 12% on the year as the threat of taper continued into the fall and winter. In its final meeting of the year, the Fed decided to finally taper, decreasing its monthly bond purchases from $85B to $75B. This had little effect on equity markets despite expectations. As expected, bonds sold off even further.

Unlike US equities, the TSX or Toronto Stock Exchange started the year off rather sluggish. After making highs in mid March, the TSX sold off over 7% where it bottomed and then retested its yearly highs. A selloff was followed, and a double bottom occurred. Following the double bottom under the 12000 level, the TSX caught a slow bid bringing it up to close in the mid 13500’s for the year. The TSX was battered and whipped around by the price of gold. Gold plays a major role in the moves of the index as many of the companies which make up the TSX are miners and moves reflect the price of gold. As the threat of taper, which would signal an end to possible inflation created by it neared gold sold off. As gold sold off, the TSX followed suit. This can be said till mid June where the TSX moved against the trend in gold and continued to march higher.

A new year is among us, and investors are repositioning themselves on what appears to be a market which has no top. It is clear a selloff is overdue and will occur, the question is how much and when. As long as the US economy continues to improve, this market appears to be going only one way, up.

All the best in your trades in the year ahead of us!

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