At the Close: Stocks Edge Higher, Look Ahead to 2014

Like the little engine that could, stocks are chug, chug, chugging higher, even if they have to work hard for their gains.

Bloomberg

The S&P 500 gained 0.2% to 1,808.37 today, while the Dow Jones Industrial Average finished little changed (some 0.03% higher, if you must know) at 16,025.53.

The S&P 500 got a lift from Sysco (SYY), which gained 10% to $37.62 after purchasing a competitor,  Davita HealthCare Partners (DVA), which rose 6.7% to $62.17, and Cabot Oil & Gas (COG), which reported stronger than expected production in the Marcellus region. Big losers include Newfield Exploration (NFX), which dropped 8% to $24.33 after offering disappointing production guidance, and Edwards Lifesciences (EW), which fell 5.4% to $62.73 after releasing disappointing earnings guidance.

Still, investors appear to be looking past December and into 2014. Strategists, in particular, are predicting a solid, though muted year-to-come. Just eyeballing the reports that have been rolling in, the consensus appears to be for the S&P 500 to close somewhere between 1,900 and 2,000 by the end of 2014, good for a 5.1% to 11% gain. That’s right in line with the 5.5% gain in the S&P 500 in the 23 years following 20%+ gains since 1927, according to this Wall Street Journal story, but the average misses the point: the S&P 500 has dropped eight times after a 20% gain, but has gained 20% or more six times. So maybe those predicting a lukewarm 2014 will be right, but the odds suggest it could be another year of extremes–good or bad.

Barclays’ Barry Knapp recommends investors shift into safer sectors. In a note released on Friday, he writes:

While the fundamental improvement seems to point to a favorable environment for equities in 1H14, given the persistent drop in the equity risk premium in cyclical stocks and unfavorable mix of S&P 500 mid-cycle valuation and earnings growth, even if our earnings forecast does prove correct, the risk of a period of digestion of this year's gains are fairly high…

We upgrade Staples to Overweight to reduce portfolio beta and downgrade Utilities to Underweight to decrease interest rate sensitivity; reducing total portfolio cyclical exposure.

Knapp, by the way, is one of those predicting a 1,900 S&P 500 at the end of 2014.