By: Dylan Sikes - AllPennyStocks.com News

Friday, January 3, 2014

The bulls ran wild on Wall Street in 2013, cracking bear skulls every chance they got, fueled largely by monetary stimulus efforts of the U.S. Federal Reserve, major merger and acquisition activity, smoking-hot IPOs and a biotech sector that just wouldn’t quit. In a year that still featured the common phrases that the country is “recovering from the Great Recession” and “the market is overextended,” stocks climbed at a sweltering pace without relent. The Dow Jones Industrial Average rose to all-time highs and recorded gains of 26 percent, its best yearly performance since gaining 33.5 percent in 1995. The benchmark Standard & Poor’s 500 notched gains of 30 percent (best since 31% in 1997) on its way to new record levels and the technology-rich Nasdaq exchange scored gains of 30 percent, putting it within 900 points of its record high in 2000 at the apex of the dotcom bubble. Nike, Inc. (NYSE:NKE), which was added to the Dow as part of a shake-up in September, paced the 30-component index with gains of 50 percent in 2013, with Walt Disney (NYSE:DIS) and Visa (NYSE:V) also amongst top Dow gainers. In the biggest Dow component shakeup in nearly a decade, Nike bumped Alcoa (NYSE:AA) from the Dow, while Goldman Sachs Group Inc. (NYSE:GS) replaced Bank of America (NYSE:BAC) and Hewlett-Packard Co. (NYSE:HPQ) was replaced by Visa, Inc.

Shares of streaming content provider Netflix, Inc. (Nasdaq:NFLX), which also joined the Nasdaq 100 on June 6, was the best S&P 500 performer in 2013 with gains around 300 percent. The stock has risen in 14 of the past 15 months.

There was no single, constant factor bigger than the third iteration of quantitative easing, or “QE3” as it’s called, the Federal Reserve’s policy of holding its key interest rate at historic lows and buying $85 billion each month in Treasuries and mortgage-backed securities in an effort to stimulate the economy. The central bank began the asset purchases in September 2012, without giving a clue as to how long it would maintain the practice. The markets traded on economic data throughout the year under the interpretation that “bad news is good news and good news is good news,” as weak economic data meant that the Fed would keep running QE3 and good news meant that the economy was strengthening. Combining that mentality with earnings reports throughout the year indicating business was getting better and there was little for market bears to chew on.

December is generally friendly to the markets; a time that has colloquially become known for a “Santa Claus rally.” Realistically, the whole year was filled with market joy, as the Dow only suffered two down months (June and August) all year and has risen in 11 of the past 13 months. The S&P 500, which is often regarded as a better barometer of economic health because of its number and diversity of companies, is up in 16 of the last 19 months. Not too shabby for a country “recovering.”

The markets even rallied through the Federal Reserve’s December decision to start slowing its pace of asset purchases in January. The Fed is cutting-back to $75 billion per month (split evenly between Treasuries and securities) and plans to conduct further decreases as economic data allows. Outgoing Fed Chairman Ben Bernanke reiterated the bank’s pledge to support the economy, trying to bolster inflation and decrease unemployment by only adjusting purchases as warranted by data and keeping interest rates uber-low for an extended period of time. Bernanke is being replaced as head of the Fed by Janet Yellen at the start of 2014.

The move by the main bank seemed to be timed very well with U.S. and Canadian economic data showing strength in North America, along with Europe expecting expansion in 2014 and China looking like its not coming to a hard landing. Earlier in the year, the move may have not been so well received, with constant turmoil in Europe, especially with political and financial problems in countries such as Cyprus, Portugal, Greece and Italy.

For brevity’s sake, it’s impossible to cover all of the activities in Washington aside from the Federal Reserve regularly testifying to Congress, but there were certainly some notable moments. For starters, an $8.5 billion increase in payroll taxes and series of automatic cuts in government spending, known as the “sequester,” went into effect in March with little more than a murmur of a complaint. Also, the government went through its first partial shutdown since 1996 in October with more than 800,000 employees furloughed for 16 days because policymakers could not come to terms on a budget or raising the debt ceiling so the nation could avoid defaulting on its bills. An 11th-hour agreement was finally reach to avoid default as Republicans caved-in on their incessant fight to try and stop the Affordable Care Act by leveraging a budget deal. On that point, the Affordable Care Act, more commonly known as “Obamacare,” took its next step with the launching of a national marketplace for insurance (healthcare.gov) with the full healthcare reform going into effect on January 1. So far, the website has had a litany of problems, but some pundits think that the real problems could begin in the New Year when people are heading to doctors and emergency rooms and there is a massive sorting out of who is covered and who isn’t under the new insurance plans.

Washington was also in a global spotlight after President Obama tried to rally support from allies to lead an assault on Syria after it was determined that the country used chemical weapons on its own people, killing more than 1,400 civilians, including some children. Supporters were slow to rise, though, and the expected attack never manifested. For the most part, the grotesque demonstration by Syria on its own people slipped from the headlines after the country reportedly agreed to surrender all of its chemical weapons (yeah, right).

Even amid the gridlock in Washington and rising taxes, the nation still managed to put more people to work in 2013. 2012 ended with the unemployment rate at 8.1 percent, which had been lowered to 7.0 percent in November, as of the last report from the Labor Department in December.

Taking a look at equities, there were many popular initial public offerings, but none more anticipated than social network firm Twitter, Inc. (NYSE:TWTR) making its debut on the NYSE in November. The company moving up its pricing range from $17 - $20 per share to $23 - $25 per share before the offering did little to dissuade investors as the stock opened at $26 and exploded 75 percent before pulling back. Investors remained thirsty for the stock in December, taking it as high as $74.73 per share.

As some companies went public, others made their exit to move back to the private domain, including Dole Food Co. (NYSE:DOLE) and Steinway Musical Instruments (NYSE:LVB). Billionaire activist investor Carl Icahn finally gave up his fight to control Dell (Nasdaq:DELL) in September, with a deal announced whereby the founder Michael Dell and his partners at Silver Lake would take the company private in a deal worth nearly $25 billion.

Oil giant BP Amoco PLC (NYSE:BP) couldn’t convince U.S. District Judge Carl Barbier that businesses seeking damages from the 2010 Gulf of Mexico oil spill needed to provide proof of losses. BP was deemed culpable for the largest majority of damages in the biggest offshore oil spill in U.S. history, as the controversial oil & gas equipment and services provider Halliburton (NYSE:HAL), and as the oil & gas drilling company Transocean Ltd. (NYSE:RIG) also involved in the spill received what amounted to a slap on the wrist compared to what BP is facing. In August, Halliburton plead guilty to destroying evidence pertaining to the Deepwater Horizon spill. BP has already paid out nearly $4 billion because of the spill, but with the courts finding them negligent, the fines could amount to between $3 billion to $18 billion more.

Speaking of slaps on the wrist, the European Union fined Microsoft (Nasdaq:MSFT) 561 million euro, or about US$732 million, for failing to provide users of Windows 7 with a choice of Internet browsers. The EU watchdog said that Microsoft is the first company to break an agreement, which would have allowed more than 15 million consumers an alternative to Internet Explorer.

In some big bank news, federal authorities hit JPMorgan (NYSE:JPM) with a $13-billion settlement in November that was related to the bank's past mortgage practices. JPM said it had already set money aside for the penalty and investors seemed to be glad that the company is putting its infamous “London Whale” debacle and these mortgage issues behind it, with shares gaining about 26 percent in 2013. UBS AG (NYSE:UBS) also paid for its crimes, agreeing to pay approximately $745 million to settle a case with the US Federal Housing Finance Agency over improperly selling mortgage-backed securities to Fannie Mae and Freddie Mac.

A look back at 2013 wouldn’t be complete without a mention of Boeing Co. (NYSE:BA) and the grounding of their heralded and newly-debuted 787 Dreamliners because of fires and concerns about on-board lithium-ion batteries and other mechanical problems. The U.S. Federal Aviation Administration, as well as regulators in Europe, Japan, India and other countries, put a figurative boot on the planes until Boeing unveiled a plan to quell any concerns, allowing the planes to return to the air in May after weeks of downtime.

Like Boeing was having trouble in the air, Carnival Cruise Lines (NYSE:CCL) was having trouble in the water. The company suffered through four different cruise mishaps, including a fire that wiped-out power on its Triumph ship that left the ship floating at sea for four days and technical issues with the propulsion system of the Legend that forced the ship to skip stops and gimp its way back to Tampa, Florida. Adding to the Triumph embarrassment (now dubbed “the poop cruise”), the busted-down ship broke free of its mooring line in Mobile, Alabama and drifted across the river it was in.

Already struggling coal plays, like Arch Coal, Inc. (NYSE:ACI), James River Coal Company (Nasdaq:JRCC) and Alpha Natural Resources Inc. (NYSE:ANR), took some lumps upon a new proposal from the U.S. Environmental Protection Agency seeking power plants be put under far greater restrictions for greenhouse gases. The proposal seeks to cut emissions at coal-fired plants from around an average of 1,800 pounds of CO2 per megawatt-hour to 1,100 pounds or carbon dioxide per megawatt-hour.

Mergers and acquisition activity was steady throughout 2013, including plenty of $1-billion-and-up deals, but none bigger than the September deal between Verizon Communications (NYSE:VZ) and Vodafone. The companies agreed to Verizon buying its 45-percent stake in Verizon Wireless that it doesn’t already own for a whopping $130 billion, marking one of the biggest deals in history.

After an initial lawsuit from the U.S. Department of Justice based on antitrust rules, Constellation Brands (NYSE:STZ), Grupo Modelo and Anheuser-Busch InBev (NYSE:BUD) made some modifications to an agreement to get it past regulatory scrutiny for the second-biggest beer deal ever. In the $20.1-billion merger, Constellation bought Modelo’s complete U.S. business, including brands and breweries as well as its interest in Crown Imports LLC, making Constellation Brands, one of the world's biggest wine importers, the third largest beer producer in the US.

The takeover battle between Dish Network (Nasdaq:DISH) and Japan’s SoftBank to acquire Sprint Nextel (NYSE:S) finally came to an end this summer with Dish bowing out and SoftBank investing $21.6 billion to gain 78-percent of the Sprint. Meanwhile, the FCC approved Sprint’s $14-billion deal to buy the remaining half of Clearwire Corp. (Nasdaq:CLWR) that it didn’t already own.

In April, Thermo Fisher Scientific Inc. (NYSE:TMO) agreed to buy gene sequencing and DNA analysis researcher company Life Technologies Corp. (Nasdaq:LIFE) for $76 per share, in a deal worth $15.8 billion, including $2.2 billion of debt.

The Justice Department also dropped its lawsuit to block the $11-billion merger of American Airlines parent company AMR Corp and U.S. Airways Group (NYSE:LCC) upon the new merged company, called American Airlines Group (Nasdaq:AAL), making concessions to not monopolize key spots in leading airports.

A few other deals deserving of a mention include: drugmaker Perrigo Co. (NYSE:PRGO) acquiring Irish drugmaker Elan Corp. PLC (NYSE:ELN) for $8.6 billion; Valeant Pharmaceuticals (NYSE:VRX) spending $8.7 billion to acquire eye care product maker Bausch & Lomb from private equity firm Warburg Pincus; electronic component maker Molex Inc. (Nasdaq:MOLX) agreeing to be purchased for $7.2 billion by Koch Industries Inc.; ViroPharma (Nasdaq:VPHM) agreed to be acquired by European-based Shire Ltd. (Nasdaq:SHPG) for about $50 per share, or about $4.2 billion; and Smithfied Foods Inc. (NYSE:SFD) was bought by Chinese meat producer Shuanghui Group for about $4.8 billion.

Talking about 2013 is like an award-winning speech where it’s impossible to mention everyone that deserves kudos, but we’ll stop there. Indeed, it was a great year for the markets and thousands of companies big and small.

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We expect bullishness to continue throughout 2014, with pullbacks here and there as traders dock some profits and the exchanges take a breather before the next leg up. We are sanguine about how big the gains will be, as the Dow and S&P 500 generally won’t replicate gains in the area of 30 percent in any following year, but things are looking good with no resistance in sight.

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