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Amid challenges, stocks in 2013 were unstoppable

NEW YORK--The stock market was unstoppable in 2013.

A U.S. government shutdown, fear of a default, the threat of military action in Syria, big budget cuts, and a European country looking for a bailout — any number of events might have derailed the stock market. But they didn't.

And if skittish investors jumped out of stocks, they lost out.

“2013 would have been good year to wear noise-canceling headphones,” says Dean Junkans, chief investment officer for Wells Fargo Private Bank. “There were a lot of things that happened and the market kept moving higher.”

The Standard & Poor's 500 was poised to have its best year since 1997. It was up 29.4 percent as of early afternoon Tuesday. The Dow Jones industrial average was also on track for a stellar performance: It was up 26.3 percent, its best gain since 1995.

Instead of worrying about the wider world, investors focused on the Federal Reserve and the outlook for its stimulus program.

The Fed bought US$85 billion in government bonds each month in 2013. The purchases were designed to hold down long-term borrowing rates and encourage spending and investment. The stimulus also prodded investors to move from low-yielding bonds to stocks.

Investors reacted to every twist and turn of the program's fate. They sold stocks in the spring and summer over fears the central bank would slow its bond-buying prematurely. They worried that every bit of good economic news signaled the end of support. But in December, as hiring grew consistently stronger, investors were confident enough in the economy that they reacted positively when Fed officials finally decided to dial back purchases. The Fed also reassured the market by signaling it would keep short-term rates near zero. The stock market, which hovered below all-time highs, returned to record territory.

Of course, it wasn't all about the Fed. Companies also played a part.

Despite a middling economy, U.S. corporate earnings rose for a fourth straight year. Total earnings for S&P 500 companies in 2013 are forecast to increase 5.37 percent, to a record US$109.03 a share, according to data from S&P Capital IQ.

“It's tough to argue that companies are in anything other than good health,” says Paul Atkinson, head of North American equities at Aberdeen Asset Management, a global fund management company that oversees about US$3 billion.

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A trader celebrates the new year while working on the floor at the New York Stock Exchange in New York, Tuesday, Dec. 31. (AP)

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