scored a third straight month of gains in November as stocks
scaled epic highs.
The average U.S. diversified stock mutual fund returned 2.7%
for the month and is up 29.1% year to date, according to Lipper
Inc., on the back of expectations for continued monetary stimulus
from the Federal Reserve.
climbed the proverbial wall of worry in the face of rising
interest rates and weakness in employment, housing, commodity
prices and consumer confidence -- not to mention fears of an
asset bubble inflated by the Fed's unprecedented bond-buying
spree, known as quantitative easing.
Bullish fund managers are mostly optimistic that the Fed will
stand pat on its easy-money policies to support the economy for
the foreseeable future.
"Unemployment is way above where they want it to be, and
(Federal Reserve Chair nominee Janet) Yellen is more concerned
about it than (Fed Chairman Ben) Bernanke," said John Barr,
manager of $140 million Needham Growth and $67 million Needham
Aggressive Growth .
The S&P 500 added 2.8% and closed at record highs. The
Nasdaq picked up 3.6%, ending at a 13-year high. The S&P 500
soared past the psychologically significant round level of 1800
-- surpassing consensus projections of 1750 for this year. Wall
Street on average expects the S&P to rise to 1900 next year
and for the Fed to start scaling back QE in December or
Since 1926, there have been 32 years in which the S&P 500
returned more than 20%, including dividends, and on average the
index gained 11.5% following those years, according to Delta
Investment Management in San Francisco, with $35 million in
client assets. In those 32 years, the market closed higher about
seven out of 10 times. The average loss during the losing years
"These risks are known by investors and somewhat discounted
into current stock market valuations," Delta Investment
Management wrote in a client note. "As long as tapering by the
Fed is well communicated and gradual, and as long as 10-year
Treasury rates remain below 5% and show modest volatility, there
is no reason for us not to expect 2014 to be another good year
"Global economic growth and a steadily improving U.S. economy
should continue to lift equity valuations higher," Delta
"Research shows that as long as the 10-year Treasury rate is
below 5%, gradually rising interest rates have a positive
correlation with appreciating stock values."
The 10-year Treasury note yield rose 18 basis points in
November to end at 2.75%.
Heartiest Sector Performance
Steroidal gains fueled by mergers and acquisitions coupled
with positive research results at biotechs vaulted health
care/biotech funds to the top of the leader board. They returned
5.43% in November and an eye-popping 46.4% for the year. The
health sector had the greatest percentage, 67%, of companies
beating third-quarter revenue forecasts as well as the highest
growth rate among the 10 S&P sectors at 5.7%, according to
FactSet. Next to technology, it had the second-highest percentage
of companies, 80%, reporting earnings surprises.
M&A activity will continue to stoke bullish sentiment for
biotech companies, according to Aegis Capital. Large-cap
pharmaceuticals such asAstraZeneca (
),Eli Lilly (
) andMerck (
) are under pressure to acquire new drug pipelines as their drugs
face patent expirations.
"This stokes investors' appetites for new public offerings and
follow-on equity financings by existing emerging companies,"
Aegis analysts wrote in a November health care update. A strong
stock market and the Fed's easy-money policy has buoyed the
biotech IPO market -- the hottest since 1999, they noted.
Health care reform legislation, commonly referred to as
ObamaCare, has hurt the pharmaceutical industry's profitability,
but it will benefit from the significant increase in new demand
next year when as many as 32 million currently uninsured
Americans will get health coverage, Herman Saftlas, an equity
analyst at S&P Capital IQ, wrote in a research note.
Pharma is one of the highest-margin industries with enhanced
prospects from the growing elderly population, who account for a
third of sales, he added.
Global drug sales totaled $962.1 billion in 2012 and are
forecast to see a compounded annual growth rate of 3% to 6% over
the five years through 2017, according to IMS Health.
The research firm sees an expanding middle class worldwide,
new specialty medicines, rising drug costs and stronger economic
growth prospects in developed nations helping to push sales over
$1 trillion in 2014.
The fastest-growing markets in Asia and Latin America are
expected to enjoy 10% to 14% annual growth because of increasing
government and private insurance funding. An average 35 new
medicines are forecast to launch annually.
Gold Drowning In Red
Precious metals funds, down 11.03%, were the worst-performing
sector in November and the only major one drowning in losses for
Their year-to-date decline deepened to 47.5%. Gold prices, as
tracked bySPDR Gold Shares (
), fell 5.5% for the month to 120.70, which translates roughly to
$1,207 an ounce. The yellow metal lost 25.5% year to date -- its
largest one-year loss in 32 years.
The gold bugs blame fears of the Fed scaling back its stimulus
program for the loss, even though it's been declining ever since
reaching an all-time peak of $1,858 an ounce in September 2011.
Gold even failed to recover after the Fed announced a third round
of quantitative easing, or QE3, in September 2012.
The sell-off has sent gold miners' valuations to a decade low
and prices could rebound just because of seller exhaustion, said
Adrian Day, manager of the EuroPac Gold with $18 million in
assets and president of Adrian Day Asset Management in Annapolis,
"Stocks jumping higher on positive news suggests that the
selling is close to an end," Day said in an email. "I tell
investors that this is the time to buy. They should not be
chasing the markets that have done well but buying markets that
have been weak."
Silver prices, as tracked by
Silver Trust (
), plunged 8.8% in November and 34.5% year to date.