Salient to Investors:

Average daily price moves for the S&P 500 have seen the steepest decline since the 1930s – the last time the annual average was this low was 1995, when the S&P 500 rose 34 percent and doubled in the next four years. Going back to 1928 shows stocks gain an average 17 percent during years when the gyrations are so small. Lower-than-average volatility occurred during the 2 years before the S&P 500 peaked and fell 38 percent in 2008. The 9 times that volatility was at today’s levels, the S&P 500 ended the year higher.

The median economist expects GDP to rise 1.9 percent in 2013, and the median analyst predicts corporate profits will drop 1.5 percent in Q1 2013. Analysts expect S&P 500 earnings to grow 6.7 percent in 2013 and 11.6 percent in 2014.

Michael Shaoul at Marketfield Asset Mgmt said switching from net outflows to net inflows has been a big reason for volatility being dampened, while the more sedate market encourages equity allocation. Eric Teal at First Citizens BancShares said retail investors are swayed by market volatility, especially after 2008, and the fewer external shocks to the market will keep them pulling money out of bond funds and into equity funds.

ICI says $37 billion moved into equity funds in January, the most since 2004, and Birinyi Associates said tech companies and financial institutions received the biggest inflows.

USAA Investments said smaller price fluctuations may indicate investors are becoming too complacent. John Toohey at USAA is concerned we may have risen too far too fast because economic growth is not that strong, while any sort of crisis will spike volatility and lead to a correction.

Howard Ward at Gamco Investors we have finally reached the point where investors are more comfortable buying stocks again, and Apple trades near a record low multiple and is poised to gain. Apple is the cheapest in 12 years relative to the S&P 500.

Wayne Lin at Legg Mason said investor concern about growth and profits is keeping valuations attractive. The S&P 500 is at 15 times earnings versus the 16.4 average since the 1950s.

Bob Prince at Bridgewater Associates is bullish on stocks as economic confidence encourages investors to shift to riskier assets. Prince said growth will improve, particularly in the US.

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