After a rock-and-roll 2013, is it possible for the stock market to crank out another hit year in 2014?
The short answer, which some everyday investors might find hard to believe, is yes.
The Dow Jones industrial average gained 26.5 percent in 2013 and closed the year at a record 16,576.66 points. The Dow and the Standard & Poor’s 500 index kept breaking one record after another.
“The biggest question is, ‘What does the market do for an encore following 2013?’” said David Sowerby, a Bloomfield Hills, Mich.-based portfolio manager for Loomis Sayles.
“History tells me stocks can have a very solid year,” Sowerby said.
To be sure, stocks have pulled back in the new year. Some experts said investors sold off early in 2014 to lock in gains and postpone paying capital gains for a year. We will see what happens in the days ahead.
And of course, many of us might not even be able to understand just why last year turned out so well for stocks. The U.S. economy crawled along at a turtle’s pace for much of the year, the jobs picture was far from robust, and 2013 started off with horrible headlines about the fiscal cliff and a still-fragile economy.
The bright spots, of course, turned out to be a stronger recovery for housing, rising consumer confidence, and the Federal Reserve’s move to delay what was expected to be a push toward higher interest rates.
For 2014, stock market watchers say they’re optimistic about stocks overall because interest rates and inflation remain low and Europe is recovering from its recession. Companies have cash to invest and could do so, analysts said, based on the positive forecasts ahead.
Sowerby noted that there is less “fiscal uncertainty and no tax hike, unlike January 2013” to hold back growth.
Risks remain: Say if we saw slower-than-expected growth in corporate profits; some unknown international trouble; more fiscal dysfunction in Washington, or unexpected economic setbacks in Europe or China.
Kevin K. Yousif, chief investment officer for passive management for LS Investment Advisors in Bloomfield Hills, Mich., said investors could see another double-digit year for U.S. stocks, but probably not as strong as 2013.
Yousif pointed to another reason for optimism: The U.S. jobless rate is down to 7 percent from a peak of 10 percent in October 2009. More jobs, he said, puts money into consumer wallets and reduces the strain on government budgets.
Ina Fernandez, managing director for Liberty Capital Management, an investment adviser firm in Birmingham, Mich., said forecasts call for a positive outlook for stocks and a negative outlook for bonds for 2014.
“After the huge returns from the stock market in 2013 that lifted all boats, 2014 will be more of a stock picker’s market,” she said.Susan Tompor is the personal finance columnist for the Detroit Free Press. She can be reached at email@example.com