"What stocks to buy now?" When prompted with this question, Gregory Mankiw, Professor of Economics at Harvard, told his mom, "Don’t ask me!”

Despite worries that federal spending cuts and higher taxes would lead to an economic slump, the S&P 500 finished the month up 1.81%, at a new all-time closing high, bringing YTD total returns for the index to 12.74%. U.S. asset class returns ranged from 2.12% for large growth stocks to negative 0.66% for small cap growth stocks. Across the size spectrum, large caps outperformed small caps. Across the style spectrum, large cap growth did better than large cap value; however, small cap value outperformed small cap growth.

The first quarter ended on a happy note, as all major US asset classes posted positive results, with the broad market returning 11.07%. Asset class returns ranged from 9.54% for large growth stocks to 13.21% for small growth stocks. Across the size spectrum, small caps out-performed large caps. There was a positive value premium market-wide in the US, driven by the performance of large value and midcap value stocks; however, small cap value stocks underperformed small cap growth stocks.

After a strong January with returns of more than 5 percent, the S&P 500 struggled to gain in February. Despite a sharp, but brief setback, the index rose for the fourth consecutive month in a row, returning 1.36 percent, and finishing just short of its record close of 1,565, a level that was reached briefly in 2007. Investors were encouraged after Ben Bernanke stood behind the central bank’s low interest rate policy and after a positive revision to fourth-quarter gross domestic product from an earlier estimate showing contraction.

Theoretical and empirical work in finance over the past 50 years has led to an evolution in our understanding of how financial markets work. For instance, 40 years ago, building on the work of Harry Markowitz on portfolio selection and the efficient diversification of investments, William Sharpe and others initially thought there was only one dimension of expected returns in equity markets—the market itself.

The Standard & Poor's 500 Index returned 5.2% in January. The last time U.S. stocks had a better start was in 1997, when the S&P 500 climbed 6.1% and finished the year with a 31% gain. The MSCI All-Country World Index of shares in 45 nations returned 4.6%, including dividends.

Facts: Indexes have no costs, but funds do. Most funds underperform their benchmark (BM) at a minimum by ther expense ratio and some additional amount related to turnover.

Numerous headlines during the past year caused many investors to fear catastrophes that never materialized. For example, a showdown looms in congress over raising the federal debt limit; nonetheless a plunge off the fiscal cliff has been averted for now. And though Europe hardly solved its problems, the euro zone did not break up. As for China’s economy and stock maket , they did not crash.  And as for politics, Obama’s re-election did not sink the stock market.

In regards to stocks, it was a rocky month. The S&P 500 plummeted 4% in the week following the President’s reelection before rebounding on economic optimism. The S&P 500 finished November 0.58% higher even though there has been little progress on talks to prevent spending cuts and tax increases. Some analysts doubt the dire predictions on the tax increase. Year -to-date (Nov 30) total returns on the S&P 500 are a welcome 14.96%.

Lasting 18 months, the recession of 2007-2009 was the longest and deepest U.S. contraction in the post-World War II era.  Though recovery started in the summer of 2009, it is widely considered to be the weakest in the postwar period in terms of both output and employment growth.