We have attached our 2014 Outlook for the economy and markets. This gives you a good overview of what we see as the key catalysts for improving U.S. economic growth and the factors that would help keep stocks moving higher in 2014. Overall we are optimistic that the U.S. economy will exceed current expectations of 2.5% growth. We believe U.S. GDP growth will outpace expectations due to the following factors falling into place:
1) the Federal Reserve implements the transition in monetary policy slowly,
2) consumer and CEO confidence continues to improve,
3) the U.S. energy revolution adds an economic boost to our economy,
4) the resurgence in U.S. manufacturing continues and
5) the housing market posts solid growth in 2014.
We also expect the economic drag from tax increases and government spending cuts to be less than expected, particularly after Congress passed the Murray-Ryan budget. Therefore, we expect the U.S. economy to grow in the range of 3% to 3.5% in 2014.
The Federal Reserve is likely to do less tapering than currently anticipated in the first half of 2014. Inconsistent jobs numbers and low inflation should give them the leeway to continue to keep their foot on the accelerator for most of 2014.
European and Emerging Market stocks are still depressed and if the fears of economic risks continue to subside we could see stock prices perform better in these two markets in 2014. Much like what happened in the U.S. stock market – stocks moved higher in advance of meaningful improvement in the economy. It was attributable more to the reduction in macroeconomic fear levels.
Our 2014 Outlook covers the main issues in detail and should help you get an idea of how we view stock valuations and economic growth projections.