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Health & Fitness

Portfolios over Policy: Investment Outlook for 2014

We are proud to present The Investor's Almanac, LPL Financial Research's Market and Economic Forecasts for 2014.  Here is a summary of the outlook for 2014, called Portfolios over Policy.

Portfolios over Policy

In 2014, portfolios are likely to enjoy more independence from policymakers than in 2013, when the markets and media seemed to obsess over policymakers’ actions both here and abroad. This could be seen throughout 2013, during the government shutdown and debt ceiling debacle, the Federal Reserve’s (Fed) mixed messages on tapering its aggressive bond-buying program, the bank bailout and elections in Europe, and the unprecedented government stimulus referred to as “Abenomics” in Japan, among many other examples. 

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In the year ahead, there are many reasons investors can return to the basics of growing and preserving their portfolios and spend less time gauging the actions of policymakers, including:

After two “clean” lifts to the debt ceiling since 2011,which ensured any risk of default on Treasury obligations was avoided, we are unlikely to see concessions in exchange for a third increase in 2014—making a high-stakes fiscal battle unlikely.

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The Fed is likely to begin to taper its bond purchase program, known as quantitative easing(QE), in the first half of 2014, signaling a commitment to reducing its presence in the markets and transitioning to a post-QE environment.

Europe is emerging from recession, which means less need for direct life support from the European Central Bank (ECB) or painfully austere fiscal policy as deficit targets are eased.

The economy and markets becoming more independent of policymakers while growth accelerates is likely to bolster investor confidence in the reliability and sustainability of the investing environment.

Key components of our 2014 outlook:

▪   Stronger U.S. economic growth emerges from fertile soil, accelerating to about 3% in 2014 after three years of steady, but sluggish, 2% growth. Our above-consensus annual forecast is based upon many of the drags of 2013 fading, including U.S. tax increases and spending cuts, the European recession, and accelerating growth from additional hiring and capital spending by businesses.

▪   The stock market may produce a total return in the low double digits (10 – 15%). This gain is derived from earnings per share (EPS) for S&P 500 companies growing 5–10% and a rise in the price-to-earnings ratio (PE) of about half a point from just under 16 to 16.5, leaving more room to grow. The PE gain is due to increased confidence in improved growth allowing the ratio to slowly move toward the higher levels that marked the end of every bull market since World War II (WWII).

▪   Bond market total returns are likely to be flat as yields rise with the 10-year Treasury yield ending the year at 3.25 – 3.75%. Our view of yields rising beyond what the futures market has priced in warns of the risk in longer-maturity bonds now that conditions have turned for the bond market.

In 2014, there may be more all-time highs seen in the stock market and higher yields in the bond market than we have seen in years as economic growth accelerates. The primary risk to our outlook is that better growth in the economy and profits does not develop. That risk is likely to be much more significant than the distractions posed by Fed tapering and mid-term elections. In our almanac, we forecast a healthy investment environment in which to cultivate a growing portfolio in 2014.  

 

To read more download the full Outlook 2014: The Investor's Almanac by following the link below:

 

https://cdn2.hubspot.net/hub/134267/file-395726903-pdf/docs/Outlook_2014__PrinterFriendly_(1).pdf/?&_...

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