Economic Predictions for 2014

Expect moderate economic growth globally this year

Bob Doll, Nuveen Investments’ chief equity strategist and senior portfolio manager, expects broader and strong but still moderate economic growth in the U.S. and globally in 2014.

Speaking Tuesday at a news briefing in New York about his yearly predictions, Doll said his overarching theme this year was “less fear, more confidence.” Doll said he expected bond yields to continue to rise gradually as the Federal Reserve’s tapering moves ahead slowly and incrementally.

He noted that improving economies were leading to lower macroeconomic risks. Fiscal drag is lessening in the U.S., Europe is coming out of recession, Japan’s deflationary headwinds are diminishing and China appears to be stabilizing. “In the U.S., better business sentiment on top of firming consumption will likely enhance the odds of a noticeable increase in capital spending enabling a somewhat stronger growth trajectory,” Doll said. “The transition to self-sustaining growth will provide a much needed acceleration in revenue and earnings growth.”

He noted that many doubted the durability of the equity rally, arguing that stocks had become expensive and profit margins unsustainably high. Those factors could limit gains, he said, but would not prevent them. The stock market has outperformed, he said, because "corporate America is delivering the goods; they're called earnings." Stocks may be more volatile than they were last year, but his recommended allocation remains to overweight stocks.

“While stocks are vulnerable to a correction any time given their recent strength and some technical deterioration, we continue to favor a moderate pro-growth posture with forward long-term potential and mid- to high- single-digit annual percentage gains,” Doll said. In 2014, he said, Nuveen prefers companies with positive free cash flow profiles, low valuations, economic sensitivity and /or above average secular growth.

The biggest themes for the United States this year, he said, will be the economic recovery, Obamacare, further fiscal restraint, loss of global prestige and the midterm elections in November. He called it an 80% probability that the Democrats would retain power in the Senate and the Republicans in the House, though the GOP will likely pick up some seats in both chambers (see prediction 10 below). Globally, cyclical issues "have interrupted, not ended, the shift of economic power and financial wealth" from the developed to the emerging world.

Source:  Michael Fischer, ThinkAdvisor Magazine

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The views expressed here are that of myself or the cited individual or firm and do not constitute a recommendation, solicitation, or offer by myself, D2 Capital Management, LLC or its affiliates to buy or sell any securities, futures, options or other financial instruments or provide any investment advice or service. D2, its clients, and its employees may or may not own any of the securities (or their derivatives) mentioned in this article.

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