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Monday, December 30, 2013

(This is Mark Vickery covering for Sheraz Mian for the final few days of 2013.)

Volumes have been low, and nobody's selling. What happens when traders finally get back to work once 2014 starts (and their hangovers clear)? Will we see a rude, abrupt correction to the heady Santa Claus Rally of the past week or so?

Both the Dow and the S&P 500 were up well over a full percentage point during Christmas week, and are both 25%+ on the full calendar year 2013. But are we just assuming gains now at the cost of sell-offs later, once everyone gets back to work? What are the potential pitfalls investors need to worry about as the new year begins?

After all, tapering seems to be progressing in a rather sane fashion in its early stages. Economic growth in the U.S. has demonstrated notable resilience in the face of plenty of (mostly political) obstacles over the past year. Traction for some of the more important industries -- energy, homebuilding, etc. -- looks to grow even stronger in 2014. Most indicators seem to be pointing in the right direction these days.

Sure, we're seeing our share of naysayers, but many of these folks have been embarrassingly wrong over the course of our most recent bull-run (if not longer), so their only recourse is to cry wolf until they actually see something -- a pull-back in equities to balance out the recent buy-up, for instance -- to get re-excited about. But is this a reason to enter the new year trembling in our boots that aren't related to the cold temperatures outside?

Perhaps. Volatility is something many market and economic soothsayers tend to be wary of at this time. Ratcheting back a now-$75 billion per month QE buyback program is at very least an imperfect science, Obamacare's implementation is likely to see further headwinds -- especially if enrollment is not what the administration is expecting/relying on -- and we've seen relatively few geopolitical headlines with the potential to damage the global economy over the past few months, which, knowing what we do about the world at large, is not likely to stay quiet for an extended period of time.

Thus, we do actually have a few things to be cautious about before we continue buying every promising stock in existence as the new year ascends. But if 2013 is an indicator of the economic landscape beyond the "crisis years" of the market bust 5+ years ago, chances are business and enterprise will find ways to weather the myriad storms that may occur. And they always occur, even in boom times.

Mark Vickery
Senior Editor


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