US stocks closed last year by setting record highs and world equity markets ended at six-year peaks on Tuesday, while benchmark bond yields posted their first annual rise since 2009.
Ultra-easy monetary policies and an improving economic outlook worldwide led to a stellar year for stocks. Equity strategists see the gains continuing into this year as economic growth improves even as the US Federal Reserve steadily trims its bond-buying stimulus.
“This has been a terrific year, with all the concerns we had in January proving unfounded, and with current economic growth giving us a strong outlook for 2013,” said John Carey, portfolio manager at Pioneer Investment Management in Boston.
The S&P 500 benchmark rose 29.6 percent over the year, its best annual performance since 1997. More than 450 of the stocks in the index ended the year higher, the most since S&P started collecting that data in 1980.
The Dow Jones industrial average climbed 26.5 percent in its best year since 1995. The NASDAQ Composite Index jumped 38.3 percent, its best year since 2009.
Both the Dow and the S&P 500 finished the final trading day of the year at record closing highs, with the former ending at 16,576.66 and the latter finishing at 1,848.36. The NASDAQ rose 0.54 percent to close at 4,176.59.
In a sign of improving sentiment, the CBOE Volatility Index or VIX fell 23.9 percent over the year, the biggest annual drop for the so-called “fear index” since 2009.
Japan’s Nikkei ended the year up 56.7 percent and European shares gained 16 percent. MSCI’s all-country world equity index was up 0.22 percent at 408.33, its highest level since late 2007. It has gained 20 percent this year.
The Barclays US Aggregate Index of investment-grade bonds ended with its worst year since 1994, as interest rates rose in anticipation of reduced Fed stimulus and higher-yielding stocks attracted more investment flows.
Assets favored by investors in economic downturns took a beating last year, with falling prices driving top-rated US and German bond yields to near their highest levels in around two years and gold limping toward its worst annual performance in three decades, losing more than 27 percent.
The yield on the US 10-year Treasury note, which sets the standard for global borrowing costs, has risen to 3 percent from 1.75 percent at the start of the year, but is seen rising to only 3.35 percent this year. The 10-year note was yielding 3.02 percent on Tuesday.
Reuters polls show European stocks are expected to hit new highs this year, while Chinese, US and other major stock markets are also seen posting solid gains.
Emerging markets have been a noted exception to the rally in equities. MSCI’s EM Index fell 5 percent last year on worries that cuts in global monetary stimulus could expose economic imbalances and as funds return to the rich world.
Russian stocks hit eight-day lows after two deadly attacks in less than 24 hours that raised security fears ahead of the Winter Olympics.
The euro ended the year close to its highest level in two years against the dollar, but a Reuters poll shows it is expected to reverse its upward trend next year as the continued soft stance of the European Central Bank contrasts with the Fed’s.
On Tuesday, the single currency inched down to US$1.3756, still up more than 4 percent for the year. The dollar was slightly higher against the yen at ￥105.32, posting its biggest annual gain against the Japanese currency in 34 years, with the yen hit by the Bank of Japan’s money-printing.