Newspaper article St Louis Post-Dispatch (MO)

After a Blockbuster Year, Expect More Volatility; 2014 INVESTORS GUIDE

Newspaper article St Louis Post-Dispatch (MO)

After a Blockbuster Year, Expect More Volatility; 2014 INVESTORS GUIDE

Article excerpt

Attention, stock market investors: It doesn't get much better than this.

The Standard & Poor's 500 index notched a gain of almost 30 percent last year, or 32 percent counting dividends. That was the market's best year since 1997, and ninth-best since 1930.

It also came without much turbulence: The year's biggest downdraft was a 6 percent slide in June, when the Federal Reserve began talking about reducing its bond purchases. Historically speaking, that isn't much volatility.

So, was last year maybe a little too good? Doesn't the market always mete out punishment when things get too euphoric? There are several good reasons to be asking that question right now, but some answers are reassuring.

First, let's look at the history books. Trees never grow to the sky, and this market has been generally rising since March 2009. Since 1900, only three bull markets have lasted longer, and only two have produced larger gains.

The lack of volatility in 2013 also was striking. The market has now gone 27 months without a correction, which is defined as a 10 percent drop in stock prices. Only five times since World War II has it gone longer.

Norman Conley, chief investment officer at JAG Capital Management in Ladue, says investors should brace for more volatility in the year ahead. "Although history doesn't demand that we have a 10 percent correction this year, I wouldn't be surprised to see one," he said.

What could trigger the next downdraft? Some people are worried about the Federal Reserve's policy of tapering, or reducing, the amount of bonds it buys every month to stimulate the economy.

Kate Warne, investment strategist at Edward Jones, says investors are convinced that the Fed will do its tapering slowly and carefully.

"You sort of have the best of all worlds," she said. "If the economy strengthens, the market should do well, and if it doesn't strengthen, the Fed has made clear that it will step in with more support. That's their explicit policy."

The market is about much more than confidence in Fed policy, however. Ultimately, shares' value depends on how successful companies are at making money. …

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