Wells Fargo Advisors said the U.S. stock market is likely to see continued growth next year, although equities are unlikely to repeat the strong gains of 2013.
The bank made its prognostication in its report, titled Stay the Course. The report indicated the firm remained long-term positive on the economy and the stock market. The report targets topics and concerns commonly shared by clients and delivers the firm’s current outlook and advice on the investment markets.
As the firms Investment Strategy Committee looks to next year, its strategists see a variety of factors that should lead to continued moderate domestic economic and earnings growth. Overall, they foresee more moderate stock market upside for 2014 along with more volatility.
We expect the stock market to trend higher next year, but equity returns are unlikely to match the strong 2013 gains, said Stuart Freeman, chief equity strategist. We are now carrying a 2014 year-end target range of 1,850-1,900 for the S&P 500.
The Investment Strategy Committee expects the Fed will taper purchases in 2014, but the speed at which purchases will be scaled back is the biggest variable. The firm expects the Fed will leave short-term rates unchanged in 2014 and beyond. As a result, the pressure on longer-term rates is likely to be limited. The strategists do see rates moving modestly higher as the Fed scales back its bond purchases throughout 2014 and the bond market begins to look forward into 2015.
Wells Fargo anticipates the stock market could advance for several more years before the current bull market ends. The strategists recommend investors follow diversified asset allocations to dampen volatility risks and take advantage of any market opportunities that may develop in the year ahead. Finally, the firm believes that inflation is likely to remain low in the year ahead, but investors should not assume that inflation will stay low indefinitely.
For 2014, the Investment Strategy Committee expects global economic growth and earnings to improve only modestly and with important regional differences. Economic activity and earnings are likely to grow, but the strategists anticipate relatively more improvement among the U.S. and other developed economies and more risks among the emerging economies.
We have set our 2014 10-year Treasury year-end interest rate target at 3.50% and our 30-year Treasury target at 4.50%, a modest move higher from current levels, said Chief Fixed Income Strategist Brian Rehling. Such a move would likely result in below-average, but still positive, total returns for most fixed income investors.
