As we ring out the old and ring in the new, investors face what seems a fresh world of opportunity. After all, stock market gains exceeded 20% last year, with “more of the same, but not quite as much” on tap for 2014. Yes, the quest for alpha can continue without letup. The punch bowl is still out there.
Many of the contributors to Business Insider’s 128 “Most Important Charts of the Year” for 2013 share that sentiment. Take Jared Woodward of Condor Options. Looking at 2013’s Incredible Stock Market Gains, Woodward’s chart shows that 2013 performance exceeded the range indicated by options at the start of the year, the first time that has happened since 2008 (although in 2008, it was in the other direction).
Then there is Michael Harnett, Chief Investment Strategist at Bank of America Merrill Lynch, who sees “Stocks in a big breakout.” Harnett has “policymakers slowly winning the ‘War against Deflation,’” which is good for stocks but bad for bonds. So, “in the absence of higher inflation and/or lower earnings, stocks should be up again in 2014.” Keep chasing those returns!
Gerard Minack, Principal of Minack Advisors, points out another trend from 2013 auguring well for 2014 performance. Minack notes that “equity markets stopped worrying about swings in macro,” meaning they stopped factoring in macroeconomic developments. This can only mean that stock markets became disconnected from the real economy. That’s a good thing? Minack is reticent: “We no longer worry that macro weakness will cue more systemic stress. In short, markets think we’re back to normal. I don’t think we are, but that’s another story.” Indeed.
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