Top 10 investment signposts to watch for in 2014
The U.S. economy shows signs of an active sustainable recovery for the first time in six years, with steady growth anticipated as international markets continue to break through their slumps. Globally, the picture is mixed, as Europe transitions from recession to recovery, and emerging markets may continue to struggle as the countries attempt to address internal fiscal and monetary issues.
That’s the top-line takeaway from the 2014 investment commentary from the Investment Advisory & Management team (IA&M) of Bank of the West’s Wealth Management Group. The IA&M team leads portfolio management for the Bank’s affluent and high net worth clients.
Here is a breakdown of 10 specific areas of focus from the team’s 2014 outlook:S&P earnings. 6 to 8 percent.
The team does not see the equity market in a bubble or overvalued as long as revenues and earnings continue to grow in 2014, with S&P earnings estimated to grow at 6 to 8. U.S. equity market. Slowing growth.
Momentum in the U.S. equity market can continue if companies see improved top-line growth as a result of pent-up demand, signs that interest rates will eventually rise, diminished fiscal drag, and more balanced global growth. EU equities. Poised for breakout.
As Europe transitions from recession to recovery, the EU region’s equities could be poised for an intermediate breakout if fiscal drag continues to dissipate and growth rates accelerate. Global growth. Mixed performance.
Internationally, the team believes that global growth will continue to recover, but at a slower pace than investors expect. China is among the countries growing at or above 7% while Latin American countries are closer to 3%, and others like Brazil are facing recessionary pressures. GDP. U.S. and Global.
Real Gross Domestic Product (GDP) is expected to rise from 1.6 percent in 2013 to 2.6 in 2014, driven by an increase in industrial production, business spending, gains in housing starts, steady consumer spending, and less fiscal drag. Global GDP growth may remain modest for several years; however, current valuations for the commodity market appear unsustainably low but will likely rise with global economic growth. Emerging markets. Slow recovery.
Emerging markets may continue to struggle as the countries attempt to address internal fiscal and monetary issues, effectively reforming current policy from strictly export growth to one more aligned with domestic growth. Fed challenges. Alleviating volatility.
With the start of the Fed tapering, expect increased interest rate volatility. A factor in alleviating volatility in the markets will be the Fed’s ability to guide the market in distinguishing between tapering and rate hikes as well as clearly articulating that tapering is not tightening. Fixed Income. Attractive valuations.
High quality municipal bonds will perform relatively well as valuations remain attractive when compared to taxable securities, improving credit quality, and supply that remains below historical averages. Commodities to rise. Opportunities in energy.
Current valuations for the commodity market appear unsustainably low but will likely rise with global economic growth. Recent energy infrastructure investments should perform well as they are exploited, providing energy-intensive industries with an advantage. Capital spending. Boosting tech and industrial sectors.
In 2014, the rate of increase in capital spending could nearly double, which will be particularly positive for the technology and industrial sectors.
Read more about the Investment Advisory & Management report here, which includes an outlook for the equity, fixed income, and alternative investment classes.
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