Volatility Is Back - After a relatively tame 2013, market volatility returned in January and early February amid emerging market (EM) turmoil and disappointing U.S. economic reports. Though we foresee modestly higher U.S. and global growth in 2014, the combination of further soft economic data, Federal Reserve (Fed) tapering, and turbulence in emerging markets means more volatility in the weeks ahead.
Rates Likely to Modestly Rebound - Yields have plunged recently amid market volatility, but we still expect the 10-year Treasury to rise in 2014 to around 3.25% to 3.5% by year’s end. Although the Fed has begun its long-awaited taper, it’s likely to keep interest rates low until inflation is close to its long-term goal of 2%. With labor market conditions remaining soft and inflation well below the Fed’s target, we expect short-term interest rates to remain low for an extended period of time.
Stocks Still Look Attractive - We continue to advocate overweighting stocks. While we expect a rockier ride and more muted gains in 2014, we believe stocks can still offer better value than bonds. In fact, the recent drop in interest rates has made bonds look even more expensive in comparison to equities.
Especially International Ones - While U.S. equity market gains will likely be more modest this year than in 2013, international stocks have more room for multiple expansion, and we continue to advocate exposure to select developed and emerging markets. Within fixed income, there still are few bargains, although high yield looks interesting on a relative basis. Finally, we see low inflation, higher real rates and a recovering global economy further dampening demand for gold.
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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.
The Jacksonville Business Journal has ranked D2 Capital Management in the top 25 of Certified Financial Planners in Jacksonville. The Firm is also a member of the Financial Planning Association of Northeast Florida, the Jacksonville Chamber of Commerce, the Southside Businessmen's Club, and the Beaches Business Association.
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