Investors have been brushing off geopolitical worries and mixed economic data in recent weeks, pushing stocks to record highs and the bull market into its sixth year. While equities are no longer cheap, we believe stocks can still move higher given low rates, low inflation and a gradually improving economy.
But Gains Will Be More Modest & Volatile - We foresee modestly higher US and global growth in 2014 and believe that much of the disappointing economic data released earlier this year was weather related. still, we expect more modest US market gains and more market volatility in coming months given ongoing geopolitical turmoil, Federal Reserve (Fed) tapering and the still fragile environment in emerging markets. in addition, if US economic numbers don’t improve in coming months or if the geopolitical situation worsens, stocks and other risky assets may become more vulnerable.
Interest Rates Likely to Modestly Rise - Soft economic data, institutional buying and geopolitical tensions sent yields lower in early 2014, but we think the Treasury price rally has been overdone, and we still expect the 10-year Treasury to rise to around 3.25% to 3.5% by year’s end. Despite tapering, the Fed is likely to keep short-term interest rates low through early next year given soft labor market conditions and inflation.
Equities Still Worth Overweighting - Even after a five-year bull market, valuations and the economic environment suggest maintaining an overweight to stocks, which we believe still offer better value than bonds.
Especially International Ones -While US equity market gains will likely be more modest in 2014, international stocks have room for multiple expansion, and we continue to advocate exposure to select developed and emerging markets.
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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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