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The Standard & Poor's 500 (S&P 500) and the Dow Jones Industrial Average Indices on Thursday ended with their new record closing highs and wrapped up the quarter with amazing gains.
The S&P 500 surpassed its previous all-time closing high of 1,565.15 on Oct. 9, 2007 shortly after the opening bell on Thursday and managed to close above that level for the first time.
Meanwhile, the Dow Jones Industrial Average earlier this month repeatedly set its record highs for eight straight days and logged a 10-day winning streak, its longest since 1996. Thursday's closing bell marked the end of March and the first quarter of 2013, as the market will be closed for Good Friday.
A record-smashing first quarter
The three major indices posted a record-smashing quarter in the first three months of 2013. The blue-chip Dow jumped an impressive 11.3 percent, its best first-quarter performance since 1998. The S&P 500 surged 10 percent, its best quarter in a year, and the Nasdaq gained 8.2 percent. For the month, the three major indices were all up more than 3 percent.
The improving U.S. and global economy as well as the Federal Reserves' quantitative easing policy are major catalysts that fueled the U.S. stock market this year.
The Commerce Department revised up its final reading of the U.S. fourth-quarter GDP to an annual rate of 0.4 percent, higher than its previous estimate of 0.1 percent, and its first estimate of minus 0.1 percent. The figure indicates that the world's largest economy continued to grow, albeit at an anemic pace.
Many analysts held that it is the Fed that buy up the market with its 85-billion-U.S. dollar purchase of assets and bonds every month, which inject plethoric liquidities into the market. As a result, the size of the Fed's balance sheet kept growing and is now above 3 trillion dollars.
But as many Fed officials, including Fed Chairman Ben Bernanke, repeatedly expressed their support for the market to reassure investors, plus a bunch of recent economic data pointing to continued improvement in the U.S. economy, investors' confidence increased as they look for every dip as a chance to enter the market and take part in the market rally.
For the quarter, the CBOE Volatility Index, a leading gauge of fear in the market, plunged roughly 30 percent.
What's next for U.S. market
In view of the strong bullish quarter, investors started to wonder how far the market can go by the end of this year and what the next step will be for the U.S. stock market.
"The first quarter with such a strong performance is indicative of a year that's going to end nicely," Kenneth Polcari, director of NYSE Floor Operations at O'Neil Securities, told Xinhua.
Most analysts and traders have predicted that 2013 is going to be a turn-around year for the U.S. equity market, and by the end of the year, the market will end up at a better place.
Jason A. Weisberg, senior trader at Seaport Securities, said earlier with full confidence that the Dow would reach 15,000 by year end, while Alan Valdes, director of floor trading at DME Securities, said a five-year bull run is starting here.
Polcari predicted the market is going to end up somewhere between 12 to 15 percent higher by the end of the year. "As we are already up 10 percent, that means the second quarter and maybe part of the third quarter will be kind of just churning, not really moving up or down very much, but just continue to trade in this tight range. And as we move into the end of the year, we'll get that last push forward," he said.
Major risks for second quarter
As the market moves into the second quarter, the first risk will be company earnings reports in the first quarter, which will come in early April. According to Thomson Reuters data, earnings growth expectations for the first quarter are at a modest 1.5 percent. A little bit over 100 companies of the S&P 500 provided negative outlook compared with 23 positive forecast.
Another risk will be debt ceiling talks among bipartisan lawmakers in Washington, which is going to come at the end of April into early May. And effects of the federal government's "sequester cuts," which has been initiated in March, will be felt in the second quarter.
Last but not least, the eurozone debt crisis will continue to weigh on the U.S. market.
The Cyprus crisis created chaos around global markets over the past week and a half, as a troika of international creditors and Cyprus struggled to work out a bailout deal to prevent the small Mediterranean island country from default.
Therefore, in the second quarter, issues confront the market tend to be broader, macro issues versus very specific issues, Polcari said.
