Jan 12, 2014
By E.S. Browning
After a bang-up 2013, the stock market is starting 2014 with a whimper. The uncharacteristic dip is leaving investors in a tough position: Selling now could protect them from further declines but could also mean they would miss out on the gains most experts are still forecasting for stocks this year.
In the year’s first seven trading days, the Dow Jones Industrial Average is down 0.8%. That isn’t a big dip by stock-market standards, but it marks a clear deviation from the norm.
New investment money usually pushes stocks higher at the start of the year. In two-thirds of the years since the Dow Jones Industrial Average was launched in 1896, the blue-chip index has risen in January’s first seven trading days. In the 20 years through 2013, the gains were even more consistent, occurring 70% of the time. Last year, the Dow jumped 2.8% in the first seven trading days.
But this year for the first time since 2009, stocks are starting down. Many money managers see that as a sign of unease about the market’s direction.
Stocks may “stumble along a little here and digest the results of last year,” says Michael Fredericks, who oversees the $5.8 billion Multi-Asset Income Fund at BlackRock Inc.BLK +0.11%, an asset-management firm with a total of $4.1 trillion under management.
Investors are increasingly nervous because the Dow hasn’t had a significant decline since the summer of 2011. After last year’s 27% surge, many fret that it has come too far, too fast. They hesitate to put a lot of new money into stocks.
And yet they also hesitate to sell. Those who took fright and sold last year missed out on significant gains. Many money managers don’t want to make that mistake this year. Many expect the broad market to rise 8% to 10% this year including dividends, and they say they are willing to endure slumps as they wait for the gains.
“I would definitely not up my equity exposure in this market at all,” says Janna Sampson, co-chief investment officer at OakBrook Investments, which oversees $3.6 billion in Lisle, Ill. “But to pull out…” She isn’t going to do that either, she says.
With investors feeling tugged in both directions, she says, “you have this whole, ‘‘I don’t know what to do, I don’t know where to go’ sideways market.”
The reaction to Friday’s weak employment report was a good example. December job creation was the lowest in nearly three years, but the Dow fell just 0.05% Friday and both the Nasdaq Composite Index and the broad S&P 500 stock index posted moderate gains. Investors weren’t upset enough to do much selling, but they didn’t do much buying, either.