MarketView for December 9

Summary 

Stocks edged higher on Monday, with the S&P 500 closing at a record high, as Wall Street remained patient as to what the Federal Reserve would do at its next meeting with regard to QE3. As a result, volume was light and a volatility index fell, signaling calm among traders. The Dow industrials traded within 43.11 points from session high to intraday low, in the Dow's tightest daily range since August 17, 2012.

Speeches from a number of policymakers on Monday suggested that the Fed may be closer than previously thought to trimming its $85 billion a month in bond purchases. The stimulus program has helped drive the market's rally this year. In addition, recent economic data has removed some of the market's anxiety about the eventual ending the QE3 program. The policy-setting Federal Open Market Committee will hold its final meeting of 2013 on December 17-18.

The S&P 500 is up 26.8 percent for the year. The benchmark index is on track for its largest annual gain in more than a decade.

Twitter ended the day at its highest level since the company went public in early November. The shares rose 9.3 percent to end the day at $49.14 after a series of product announcements that could increase prospective revenue.

Sysco ended the day up 9.7 percent to close at $37.62 after the company said it would buy rival US Foods for about $3.5 billion and assume about $4.7 billion of debt to create a company with about $65 billion in annual revenue.

McDonald's ended the day down 1.1 percent to close at $95.72 after the fast-food restaurant chain reported weaker-than-expected global sales at established restaurants for November. A sharp drop in comparable-store sales in the United States hurt its global sales, McDonald's said.

Shares of Edwards Lifesciences fell 5.4 percent to $62.73 after the company forecast 2014 earnings below Street estimates and said it would face new competition in the United States and Europe.

About 5.6 billion shares changed hands on the major equity exchanges, a number that was below the 6.16 billion share average so far this month, according to data from BATS Global Markets.

Bond Funds Chalking Up Losses

As the calendar closes down on 2013, money managers are finding themselves in an unfamiliar position: selling some of the bond funds that have long been mainstays of their clients' portfolios. With the benchmark Standard & Poor's 500 Index up around 25 percent for the year, financial advisors are looking to sell some of their worst-performing bond funds before the end of December.

While tax-motivated selling is common at the end of any year, what makes 2013 different is that investors are offloading popular bond funds offered by giants like Pimco, T. Rowe Price and Vanguard, rather than riskier stock funds.

The broad bond market is down more than 4 percent for the year, hurt by expectations that the Federal Reserve would soon begin pulling back on its $85 billion a month simulative bond purchases. Moreover, there is somewhat of a consensus not to move money back into bond funds in 2014.

Bond funds are supposed to be stable investments that provide a steady dividend income at lower risks than alternatives. But uncertainty over the Fed's move has dogged the market in the second half of 2013 and helped push bond prices down, sending yields higher.

Investors plowed $131 billion into the bond market in the first half of the year, before pulling some $85 billion out of bond mutual funds between June and November, according to estimates from Lipper, a Thomson Reuters company. And the outflows may accelerate towards the end of the year due to so-called "window dressing."  The term refers to portfolio managers removing investments that are negative out of their portfolios before clients can read about them in year-end reports.

Consider that year to date the $14.6 billion iShares Core US Aggregate Bond index - a proxy for the U.S. bond market as a whole - has dropped 4.1 percent. Some sectors - such as inflation-protected bonds and emerging market debt - had steeper declines as commodity prices fell.

An unusual number of the year's worst-performing large mutual funds and ETFs are primarily invested in bonds. Typically, they are tilted more towards stock funds or commodities funds, both of which tend to take larger risks or use leverage that can compound losses.

This year, however, 73 out of the 168 mutual funds with more than a $1 billion in assets and losses of more than 3 percent for the year are bond funds, according to Lipper data.

Several investor mainstays are among the underperformers. The $16.8 billion PIMCO Real Return fund, which focuses on inflation-protected bonds, has tumbled more than 8.5 percent for the year. The $3.9 billion T. Rowe Price International Emerging Markets Bond fund has dropped 8.3 percent, while the $1.5 billion Vanguard Long-Term Treasury fund has shed 12 percent for the year.

Those losses have put bond fund managers on the defensive. In an August letter to clients, Pimco's Bill Gross urged investors to not "give up on bonds."

"Bonds - while containing a certain amount of maturity risk by very definition - will never be antiquated," Gross wrote. The Pacific Investment Management Co is a unit of Allianz SE.

The Pimco Real Return fund has had outflows of $6.9 billion in its combined share classes for the year through the end of November, according to Morningstar, compared with net inflows of 1.8 billion in 2012 and 1.3 billion in 2011.