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Our Take on the Fourth Quarter

Seemingly nothing could derail the bull market in 2013.

Jeremy Glaser 22.01.2014

It would be a bit of an understatement to say 2013 was a good year for stock investors. Seemingly nothing, from the rapid rise in interest rates last spring as the Fed prepared to exit its quantitative easing programs to the government shutdown in the fall, could stop the bull market in 2013. The Morningstar US Market Index rose 33% in 2013 and more than 9% in the fourth quarter alone, while the S&P 500 and the Dow Jones Industrial Average hit all-time nominal highs.

The biggest story in the fourth quarter, and for 2013 for that matter, was the Fed's quantitative easing program. The market was fixated for months on the timing of the central bank's exit from its signature program. By the time Fed officials announced in December that they were going to reduce the size of their bond purchases by $10 billion a month, the market reaction was quite muted as investors had already priced in the taper. However, interest rates continued to rise in the fourth quarter, with the 10-year Treasury rate touching 3% just before the end of the year.

This story is far from over. The Fed still has a long way to go to exit all of its extraordinary measures. And if 2013 showed us anything, it was that it's incredibly difficult to predict how the market will react to the Fed's moves in the years to come. Just like there was no road map for putting these interventions into place, there is no clear path of how to exit them. 

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About Author

Jeremy Glaser  Jeremy Glaser is the Markets Editor for Morningstar.com.

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