NEW YORK – The U.S. stock market sprinted to record highs and double-digit gains in the first three months of 2013, but investors expecting stocks to keep climbing at such a dizzying pace are likely to be disappointed, Wall Street strategists say.
The quarterly gains were so sizable and so front-end loaded that they would represent a great full-year return for even the best money managers. In the first three months of 2013, the Dow Jones industrials charged ahead 11.3 percent, the benchmark Standard & Poor’s 500 rallied 10 percent and the Nasdaq composite rose 8.2 percent.
Optimists view the fresh all-time highs, including the S&P 500 topping its October 2007 peak Thursday and notching a record close of 1569.19, as a sign that things are getting better in the economy and people are feeling better about their finances as rising stock and home prices make them feel wealthier.
Bulls started their stock-buying binge after the U.S. avoided a fiscal crisis at the start of the year. Buyers also grew more confident after Ben Bernanke, the nation’s chief central banker, reiterated earlier this month that the Federal Reserve’s market-friendly “easy money” policies will continue. In the final week of the quarter, stocks enjoyed a relief rally after the tiny Mediterranean island of Cyprus was able to secure a bailout from eurozone finance leaders and avoid a default, which reduced contagion fears.
But with Europe’s debt and banking crisis far from over, calls for a long-awaited market correction growing louder, and stocks moving closer to the historically weak seasonal period starting in May, the current story line of an up-up-and-away market may give way to a story of a market in need of a breather.
Volatility is likely to pick up, as is the debate about whether it’s too late to get into a rally that has delivered gains of 132 percent since the bull market began four years ago.
“I don’t think the market can keep up this kind of pace in the second quarter,” says Scott Wren, senior equity strategist at Wells Fargo Advisors, which raised its year-end price target for the S&P 500 to 1,625, or nearly 4 percent higher than current levels.
That doesn’t mean stocks are due for a major plunge, Wren says.
If a pullback does materialize, he advises investors to “buy the dip,” given that stocks are being supported by improving economic data, low interest rates, reasonable stock prices relative to earnings and a belief that the economy’s modest growth will continue.
Historical statistics back him up. Following the top 10 first quarters for the S&P 500, with gains ranging from a high of 21.6 percent in 1975 and a gain of 12 percent in last year’s first quarter, the index has posted full-year gains 80 percent of the time, with an average return of 17.3 percent, according to S&P Dow Jones Indices.
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