ROBERT SIEGEL, HOST:
From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.
AUDIE CORNISH, HOST:
And I'm Audie Cornish. 2013 was a so-so time for the U.S. economy, but it was a banner year for the stock market. Investors poured money into stocks, driving up prices to record highs. The Dow Jones Industrial Average finished the year up 26 percent. The S&P 500 did even better. NPR's Jim Zarroli looks at how the market defied expectations.
JIM ZARROLI, BYLINE: For much of this year, the U.S. economy continued to limp along, building up steam but doing it pretty slowly. It was hard to get excited about the economy's prospects unless you'd put money in the stock market.
BRAD MCMILLAN: The only place to be this year was in U.S. stocks. Pretty much every other asset class, nobody did as well.
ZARROLI: Brad McMillan is chief financial officer at Commonwealth Financial Network. [POST-BROADCAST CORRECTION: McMillan is chief investment officer.]
MCMILLAN: The stock market surprised everybody. If you look back at the start of 2013, no one - no one - expected the kind of performance we've had.
ZARROLI: McMillan says at the beginning of the year, there were plenty of reasons to expect stock prices to decline. 2013 started with the government falling off the fiscal cliff, which led to budget cuts and tax increases. President Obama was among many people who warned that the budget brinksmanship was damaging growth prospects.
(SOUNDBITE OF ARCHIVED SPEECH)
PRESIDENT BARACK OBAMA: Nothing has done more to undermine our economy these past three years than the kind of tactics that create these manufactured crises.
ZARROLI: And yet something surprising happened: Stocks kept climbing. Jeremy Glaser, a markets editor at Morningstar, says one big reason stocks did so well was that interest rates stayed low. And when interest rates are low, stocks benefit.
JEREMY GLASER: It helps the stock market because, really, it's a matter of where else you can put your money.
ZARROLI: Part of the reason rates stayed low was the Federal Reserve's $85 billion a month bond-buying program. Fed officials started to cut back on the program as the year ended. But the outgoing chairman, Ben Bernanke, was able to persuade investors that rates would stay low for a long time.
BEN BERNANKE: We expect to keep rates low well beyond the point that unemployment hits 6.5 percent.
ZARROLI: As 2013 draws to a close, there have been signs of new strength in the U.S. economy. The third-quarter growth rate was higher than expected. The job market is improving. Again, Brad McMillan.
MCMILLAN: What we've seen is, we've seen the real economy come back. We had flat growth in the first quarter. Then it came back a little; then it came back a lot.
ZARROLI: And these signs of growth have kept the bull market going. Stock and technology and social media companies - like Twitter - have faired especially well. Inevitably, a lot of people are wondering whether stocks have risen too far. Here's Morningstar's Jeremy Glaser.
GLASER: This is really the big question. A - you know, is the market kind of overvalued at these levels? And then B, if it is, what should you do about it?
ZARROLI: Glaser says it's pretty unlikely that the market can keep growing at these levels for much longer. Corporate profits aren't growing fast enough, and interest rates will probably keep rising. Brad McMillan says by almost any measure right now, stocks are pretty richly priced.
MCMILLAN: We're not in bubble territory but certainly, you can see it from here.
ZARROLI: The surge in stock prices makes investors feel a lot wealthier, and encourages them to spend. And in that sense, it's good for the economy. But the history of the last few bubbles suggests some caution is in order.
Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.