The year "saw a downsizing of fear," says David Kelly, chief global strategist at J.P. Morgan Funds. "A lot of people's fears diminished, and that allowed money to come back into stocks."
Wall Street historians had a busy year as the record books had to be rewritten.
With just one trading day left in 2013, the 117-year-old Dow Jones industrial average, which was powered by the Fed's easy-money policies and an improving economy, has notched 51 record closes, including a fresh all-time high of 16,504.29 on Monday. It is up 25.9 percent, on track for its best annual performance since 1996.
The benchmark Standard & Poor's 500 index notched 44 new highs, and is up 29.1 percent at 1841.07 and on track for its best gain in 16 years. The Nasdaq composite performed like it did in the go-go 1990s, soaring 37.6 percent to 4154.20, a level not seen since September 2000.
The small-cap Russell 2000 also hit new-high territory in 2013, gaining 36.6 percent. All told, the stock market has seen a paper gain of roughly $5.3 trillion, according to Wilshire Associates.
(Read more: Stocks poised to end 'Teflon Year' as 2013 closes)
Stock futures pointed to a somewhat uninspired finish to such a banner year. Ahead of the start of the last trading session of 2013, Dow Jones industrial average index futures were basically unchanged, while tNasdaq composite index futures and Standard & Poor's 500 index futures rose 0.1 percent.
Along the way, stock investors got a few breaks.
To start the year, squabbling Democrats and Republicans signed off on an 11th-hour deal that helped the economy avert the worst of the "fiscal cliff," a mix of government spending cuts and tax hikes. And despite fears that the Fed would dial back on its market-friendly bond-buying stimulus program, the central bank held off and said it won't start phasing out its stimulus until January 2014, a delay that enabled the economy and job market to gain steam and U.S. companies to post record earnings.
The nation also averted war with Syria and sidestepped other geopolitical landmines in places such as Iran and Egypt.
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With fears receding, investors gained confidence and bid up stock prices. They were willing to pay more for each dollar of a company's earnings, resulting in rapid price appreciation. A key valuation metric, the price-to-earnings ratio, or P-E, of the S&P 500 swelled from 14 times companies earnings over the past 12 months at the start of 2013 to nearly 17 times by year's end, according to Terry Sandven, chief equity strategist at U.S. Bank Wealth Management.
"We are ending 2013 in a good place," says Sandven. "The global economy is in slow-growth mode. Interest rates are low. Inflation is contained. And corporate earnings are rising. Typically, that presents a favorable environment for stocks."
Nobody expected the big gains in 2013, "proving you can't time markets," adds Kelly.
(Read more: Market performance after a strong year)
How sweet it was on Wall Street
How the major U.S. stock indexes performed as of Dec. 30:
Standard & Poor's 500: 29 percent gain (Best since 1997)
Dow Jones industrial average: 26 percent gain (Best since 1996)
Nasdaq composite index: 38 percent gain (Best since 2009)
Russell 2000: 37 percent (Best since 2003)
—By Adam Shell, USA Today