December 2013, 2:03 p.m.
By Debbie Carlson
Of Kitco News
Could Rise Again In 2014, But Gains May Be Tempered
News) -- The Standard & Poor’s 500 stock
index is on track to end 2013 with one of its best performances
in recent history, and generally market watchers said
equities could put in another solid year in 2014 if
U.S. economic growth stays on path.
the December Federal Open Market Committee meeting over
and the equity markets digesting the announcement of
a $10 billion-per-month reduction in the Federal Reserve’s
quantitative easing program, market participants can
start to look at wrapping up a successful year.
now and the year-end, stocks could pull back some
on profit taking, but there are few dark clouds
forming for equities, said Randy Frederick, managing
director of active trading and derivatives at the
Schwab Center for Financial Research.
there are some market watchers who are concerned
that equities could be in for a nasty break as
the markets have seen very little in the way of
a correction this year.
of mid-December, the S&P 500 is up about 27%
on the year, boosted by an assortment of factors,
said Paul Atkinson, head of North American equities
at Aberdeen Asset Management.
we’ve been this year is a reflection on the quite good
things that worked in the markets’ favor…. Generally good
corporate performance and the (macroeconomic) outlook
on the whole have been quite helpful. The GDP (gross domestic
product) numbers continue to threaten to move to the upside,
there still is no stress of inflationary risk, so there’s
no sense that the Fed has been behind the curve on inflationary
expectations,” he said.
Further, he said, rising housing prices
have helped out consumers and the unemployment levels
are starting to ratchet lower.
The S&P and the Dow Jones Industrial
Average have hit record highs this year, so it would
be natural to think that investors would be piling into
the market, but that’s not the case, Atkinson said.
There’s still quite a bit of money parked on the sidelines
from both institutions and in the retail sector on the
idea that the gains aren’t sustainable because of the
Fed’s QE program, and that when the Fed starts to taper
the bond-buying program, prices will fall back, he said.
“The rally is largely mistrusted,” he
The Fed’s announcement to taper its
$85 billion monthly bond purchases by $10 billion, starting
in January, was a bit unexpected, mostly because of
the timing of the decision. Most economists expected
a move to happen at January at the earliest. But equities
initially took the news in stride, rallying sharply
after the announcement and Fed Chairman Ben Bernanke’s
Sean Lusk, director of commercial hedging
at Walsh Trading, said the rally in stocks may have
come from investors who were waiting for the Fed to
act and see what direction they were going to take with
unwinding the stimulus.
“Although the market broke initially,
when you look at it $10 billion a month, starting in
January, is really nothing. So the weakness you saw
early (just after the announcement) was seen as a dip-buying
moment,” Lusk said.
There are some asset managers who said
prior to the Fed meeting that once tapering starts,
they would move to the sidelines. Anton Bayer, chief
executive officer of Up Capital Management, said in
a Kitco News interview prior to the Fed meeting that
he would move to more defensive position when tapering
With QE, stocks were fairly priced at
current levels, but as the Fed winds down, he said that
will affect equities. “This market is absolutely dependent
on their funding,” he said.
The reduction in stimulus doesn’t kick
in until January, so it will be important to watch how
the market acts once this is a reality. But in the long
run, getting back to a more normal monetary policy is
the goal, said both Atkinson and Frederick.
“Ultimately that’s what everyone wants,”
Not everyone sees the market rising.
Shawn Hackett, president, Hackett Financial Advisors,
said valuations are too high and he expects equities
“It’s hard to see why this market can
maintain its momentum for very long, and once we have
reversion back to the mean, the wheels start turning
the other way and it can fall very fast,” he said.
He said factors like the small-cap Russell
2000 stock index trading at 75 times earnings and margin
debt on the New York Stock Exchange hitting record highs
are just a few signs of a market getting overloaded.
He said money will likely flow to sectors
that are undervalued now, which could be sectors like
Chinese stocks or commodities.
Technical Chart Factors
Zimmerman Jr., chief technical analyst at United-ICAP,
agreed that there are some warning signs in the stock
market, but what’s missing so far is a break of critical
chart support for the major stock indexes.
to the Fed meeting when equities were drifting lower,
S&Ps were getting ready to test chart support, but
the rally after the Fed may have changed the picture
bounced off support from the 1767 area after the Fed
meeting and now charts suggest a run higher before a
possible correction. Zimmerman said based on technical
chart wave patterns, a longer-term upside target is
around 1920. He said the current stock market pattern
“fits into the larger pattern as the wave four of the
expected five wave rally from 1560.33”
Sachs said it still expects U.S. growth to accelerate
because inflation remains subdued and monetary policy
will remain accommodative, even if there is tapering.
said while the congressional debt ceiling negotiations
in February could cause some uncertainty, GDP growth
should still be around 3%, helped a bit by some easing
of the recent fiscal tightening.
also said the debt ceiling talks may not have has much
impact as they did before because the Feb. 7 deadline
may be pushed back as the U.S. government starts to
get some early annual tax money which will give it a
little more cash flow.
Goldman and Atkinson said don’t expect the outsized
gains seen this year to be repeated. Goldman forecast
gains of just over 8% (from around 1792, the price at
the time of their forecast) and Atkinson saying Aberdeen
sees a rise of about 10%.
half of what it was 2013, but after three good years
for equity investors, it’s responsible to think a bit
of tempering in the returns,” he said.