To bears' dismay, November looks like a winner; 2014 could be OK

Ok, market bears, deal with it: With just two trading days left in the month -- actually one and-a-half -- November is looking like a winner.

The Dow Jones industrials are up 3.4 percent for the month, with the Standard & Poor's 500 Index showing a 2.63 percent gain. The Nasdaq Composite Index, which closed Tuesday at a 13-year high, is up 2.5 percent. Not wanting to ignore the small-cap world, the Russell 2000 Index is up 3.1 percent.

The Dow finished Tuesday up a quarter of a point to 16,072.80, barely a record but a record nonetheless. The S&P 500's close of 1,802.77, also up about a quarter-point, wasn't a record but the third close in a row above 1,800 for the index.

The Nasdaq ended up 23 points to 4,017.75, its best close since Sept. 7, 2000. There's a full day of trading on Wednesday and a half-day of trading on Friday. Markets will be closed Thursday for Thanksgiving. 

How long the rally will last is another question and the subject of nearly endless debate. The Dow is headed toward its fifth straight annual gain. The Nasdaq Composite and Standard & Poor's 500 are looking at finishing higher for the fourth year in the last five.  

The Dow is up 22.7 percent for the year, with the S&P 500 up 26.4 percent and the Nasdaq up 33.1 percent. The indexes have seen down months only twice this year. If this were Dec. 31, the Dow's gain would be its best since 2003. The S&P 500 is looking at its best performance since 1998. The Nasdaq, historically more volatile than the Dow or S&P 500, is enjoying its best year since rising nearly 44 percent in 2009.

What's pushed the market higher: health-care, financial, homebuilders and small-cap stocks. Cigna CI has climbed 14.3 percent for the month after Tuesday's close. Cardinal Health CAH is up 10.6 percent. Bank of America BAC jumped 13.7 percent. JPMorgan Chase JPM is up 10.92 percent.

A lot of investors gave up on J.C. Penney JCP. If you had bought the shares on Oct. 31, however, your stake would be up 24.8 percent.

You didn't want to be in gold, silver, oil. They have been either losers or mediocre performers. U.S. Steel X is up 6.6 percent. That's a relatively good performance. Newmont Mining NEM, the largest U.S. gold miner, is down 9.3 percent.  

If you got into the Twitter TWTR initial public offering, you had a great first day. Shares ended the day up 72.7 percent. Since that first day, however, the shares are down 10.6 percent.

Momentum stocks have been hit hard this month. Facebook FB, up 89 percent for the year on Sept. 30, fell 0.5 percent in October and is off 8.6 percent in November. Tesla Motors TSLA is off 25 percent in November after falling 17.3 percent in October. And despite all that, it's still up more than 72 percent for the year.

Social-networking site LinkedIn LNKD is up 94.1 percent this year, but it has fallen 0.3 percent this month and 13 percent since Sept. 11.

The market's big performance in 2013 -- the eighth best for the S&P 500 since 1947, at least as of Friday's close -- continues to worry critics who insist the market is setting itself up for a major pullback.

What "major" means is anyone's guess. There's been talk of a 50 percent pullback, a 25 percent pullback, and 8 percent pullback.

The trigger that would push the market over the edge may not be apparent. Moreover, as RBC Capital Markets' noted in report released this week, 2013 has been an excellent year, but it has not been an extraordinary year that could lead to a pullback.

Moreover, a strong year does not guarantee a terrible year the next. Of the S&P 500's 10 best years since 1947, only one year saw a negative year the next. After rising 27.3 percent in 1989, the S&P 500 fell 6.6 percent the next. That was mostly due to the effects of the Iraq invasion of Kuwait on markets.

December, it should be noted, is not a drama-queen kind of month. Since 1990, the S&P 500 has risen an average 1.9%. So the question is what about 2014. Bulls see an improving economy, no matter what the Fed does; more job growth; a decent real estate market and benign oil prices.

The most persistent worry is that the Federal Reserve will get trapped by its bond-purchase programs and find itself unable to sell its huge portfolio at anything other than a big loss. That could lead to sharply higher interest rates, which could choke off the recovery.

So far, the Fed debate is esoteric. The central bank hasn't started to slow its bond buying, now at $85 billion a month, much less started to sell bonds. Moreover, if traders are really terrified, then bond yields should be jumping. Instead, the 10-year Treasury yield is just under 2.7 percent and hasn't moved much since early September.

Housing, one of the key catalysts of the 2008-2009 financial crash, is recovering. Building permits for October showed surprising strength in a report released Tuesday. The Commerce Department said Tuesday building permits reached 1.035 million units in October on a seasonally adjusted basis, the best level since June 2008.

Auto sales in October ran at a seasonally adjusted 15.2 million units, according to market-research firm Autodata. That's up 69 percent from the February 2009 bottom of 9.5 million units. Sales had fallen 54 percent from a top of 20.65 million units in May 2007.

The American consumer is a worry because spending growth is flat, especially at stores catering to middle and lower-middle class families.

The great European debt crisis has eased but not gone away.

Iran's recent agreement to stop nuclear development for six months for a modest lessening of sanctions is controversial. Israel and Saudi Arabia hate it.

But there is developing a geopolitical worry. China is claiming ownership of small islands in the seas from Japan to Vietnam and is flexing its military muscles. The issue is more than pride. There may be huge oil and gas deposits in the region. This situation bears real watching.