Five Bold 2014 Stock Market Predictions

With a banner 2013 nearly in the books, it’s time to start looking ahead to 2014.
Certain things on Wall Street are predictable. But every year brings a new set of surprises that few investors saw coming. For instance, who saw stocks achieving their best return since the Clinton administration in a year plagued by a government shutdown and an unemployment rate that remains above 7%?
Trying to predict what will happen next can be an act in futility. No one knows for sure – and they’re lying if they say they do. But we’re an investment research firm and it’s our job to forecast what might happen in the future. Plus, it’s fun to look into our crystal ball as we head into a new year.
With that in mind, here are five bold 2014 stock market predictions:
1.       The S&P 500 Will Top 2,000. It sounds lofty. But really, 2,000 points is well within reach for the benchmark U.S. index. From where we are now, that’s only a 8.6% return. Considering stocks have risen more than 24% this year, that’s a fairly modest goal. Many will say we’re long overdue for a pullback and this bull run can’t be sustained. I say the two aren’t mutually exclusive…
2.       The Market Will Get its Long-Awaited 10% Correction. It has been more than 550 trading days since the S&P pulled back at least 10%. Wall Street analysts have been forecasting a pullback for months now. I say it comes shortly after the Sell in May period … and the S&P STILL finishes the year above 2,000. I agree that a correction seems long overdue, especially with stocks trading at just under 20 times earnings – 4.5 points above the historic average. But the pullback is nothing to fear. It would be a good thing – a way of hitting the reset button, allowing investors to get in on some of their favorite stocks at cheaper prices before they ascend to even greater heights.
3.       QE3 ‘Tapering’ Will Start Before the Summer. This will probably be the thing that triggers a short-term sell-off. Fed tapering seems to be the only thing investors fear these days. Ben Bernanke has hinted at it for months, saying that 6.5% could be the potential threshold for pulling the plug on the Fed’s $85 billion-a-month stimulus program. His successor, Janet Yellen, will likely stay on a similar course. Right now, the rate stands at 7%. A few more ticks down, and expect the Fed to start putting quantitative easing out to pasture.
4.       European Markets Will Outperform U.S. Markets. European stocks have trailed U.S. markets this year by more than two-to-one. The Stoxx Europe Total Market Index is up less than 11% in 2013. Expect that number to increase in 2014. Slowly but surely, heavily indebted European nations are emerging from recession. As my colleague Tyler Laundon cited last week, the IMF expects Spain, Italy, Germany, France and the U.K. to grow their economies next year. Meanwhile, the Misery Index – the sum of a country’s inflation rate and unemployment rate – has been on steady decline in Europe the last two years. As the region recovers, European companies that survived the debt crisis will be nursed back to health. Now is the time to buy them on the cheap.
5.       Your Mutual Fund Manager Won’t Beat the Market. That’s oversimplifying things. But over the past 10 years, a mere 71 out of 17,785 actively managed mutual and hedge funds were able to beat the S&P 500. In other words, 99.6% of them failed. Four-tenths of a percent aren’t very good odds. Might as well save yourself the management fees and invest on your own.
Well, those are our top five 2014 stock market predictions. What are yours? Let us know in the comment section below.

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