Three Unexpected Q1 Market Developments

April has arrived, bringing with it the unofficial start of spring and (hopefully … at least here in Vermont) some much-needed warm weather. In the investment world, of course, April signals the beginning of a new quarter.

Whenever that happens, thousands of market analysts, columnists and bloggers chime in with their predictions for what we should expect in the coming quarter. Typically, those predictions are all over the map – some predicting great things for the market, some insisting that the sky is about to fall.

With so many armchair prognosticators, seemingly no stone is left unturned. Nothing could possibly be a surprise because Wall Street analysts have seemingly forecast every possible scenario. And yet every quarter, something unexpected occurs.

Now that the first quarter of 2013 is in our rearview mirror, we can reflect on the things that surprised us over the past three months – and hopefully learn from them. Here were three Q1 occurrences few analysts saw coming:

Wall Street Tuned Out the Economy. Stocks rose to historic levels over the past three months. Both the Dow Jones Industrial Average and S&P 500 established new all-time highs after rising 11% and 10%, respectively. That the indices managed such impressive runs during such uncertain financial times flies in the face of market convention.

Usually, things like sequestration, declining GDP growth, so-so retail sales and European debt would send investors heading for the exits – or at least the nearest gold and silver vendor. In the first quarter of 2013, Wall Street was completely unfazed by any of those potentially catastrophic events.

Where was the panic when the sequestration deadline came and went without Congress figuring out how to make $83 billion in spending cuts go away? Where was all the belt tightening when we learned that U.S. GDP actually declined in the fourth quarter? What happened to Europe’s debt woes – like what we’re witnessing in Cyprus – prompting Wall Street fat cats to wake up in a cold sweat?

None of it mattered last quarter. Investors tuned out all the doom and gloom and continued to buy stocks at record rates. That’s a far cry from what we saw in 2011 – when U.S. markets hung on Europe’s every move – and a departure from the end of last year, when the fiscal cliff deadline held the market hostage for the latter part of December.

If tuning out the headlines is the new normal for investors, then the rally may not be over yet.

The Rally Occurred in Spite of Apple, Not Because of It. Q1 was another bad quarter for the world’s largest company. Apple (NASDAQ: AAPL) shares fell 19% for the second straight quarter, dipping to as low as $420 on March 4. Given Apple’s size, that type of decline would ordinarily weigh heavily on U.S. markets. Not this time. On the contrary, the NASDAQ climbed 5% despite Apple’s first-quarter misery.

In the midst of such a massive decline, however, perhaps Apple doesn’t hold as much sway on the markets as it once did. The company has lost $250 billion in market cap since September, and is dangerously close to falling behind ExxonMobil (NYSE: XOM) as the most valuable public company on the market.

Apple may soon rally. Most analysts think it will. But when it does, don’t necessarily expect the stock to drag the market along with it.

Netflix (NASDAQ: NFLX) is Suddenly the Darling of the Stock Market Again. Two years ago, Netflix was at $300 a share and seemingly couldn’t be stopped. Then CEO Reed Hastings made a series of very public missteps and the stock nosedived to less than $60 a share. Now it’s back.

Following a bounce-back 2012, NFLX shares kept the momentum going in the first quarter, rising 105% over the year’s first three months. At $183 a share, the stock has now tripled since early October – helping subscribers to my $100K Portfolio achieve 284% gains.

Most people figured Netflix was due for a big rally when it fell below $60 a share. But few saw shares of the online video service ascending as fast as they did. Even now, the mean price target on Yahoo! Finance is $139. Can the stock continue to defy analyst expectations? We’ll find out this quarter.

What will be this quarter’s Netflix? How long will Apple’s swoon continue? Can stocks possibly go higher even after reaching all-time highs?

Those are the types of questions investors are asking now. Surely, there are just as many questions we aren’t asking that may come to define the second quarter. That’s what can make investing so difficult – never truly knowing what to expect.

Last quarter, fortunately, most of the market surprises were pleasant ones. Hopefully stocks can carry that momentum into Q2.

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