A farming almanac is an annual publication containing a guide for the coming year and a forecast of the times and statistics of events and phenomena important to growing. Farmers' almanacs have been a source of wisdom, rooted in the core values of independence and simple living, for American growers for over 200 years. In LPL Financial Research's Outlook 2014: The Investor's Almanac, we seek to provide a trusted guide to the coming year filled with a wealth of wisdom for investors.
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.
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:
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
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. Our expectation for a 1% acceleration in U.S. GDP over the pace of 2013 suggests a similar move 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.
View the complete Outlook 2014: The Investor’s Almanac
This was prepared by LPL Financial.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies
promoted will be successful.