Local financial experts foresee an upward trend in the stock market, particularly among global equities, even though the Standard & Poor's 500 Index began 2014 with a 0.9 percent decline, its worst start to a year's trading since Jan. 2, 2008, when the index slumped 1.4 percent.
The Dow fell 135.31 points, or 0.8 percent, to 16,441.35. The Nasdaq composite slid 33.52 points, or 0.8 percent, to 4,143.07.
Still, analysts said stocks for the year are looking "pretty good." "The market was grossly overbought and needed to pull back," said Peter Cardillo, chief market economist at Rockwell Global Capital.
Local experts also predict tapered monthly bond buying by the Federal Reserve will greatly affect investment strategies in 2014.
“In my opinion, the Federal Reserve’s actions with regards to tapering and interest rates will consume a large part of our investment news in 2014,” said Jason Topp, a financial adviser with Ameriprise Financial Services, in Merrillville.
“Their decisions will likely have impact on both the fixed income side as well as the equity side for investors. Conservative investors will likely continue their search for income by grasping for higher yielding investments.”
Glenn Israel, a financial adviser with Edward Jones in Munster, concurred.
“Recent news involved the Federal Reserve announcing that they would likely begin tapering their monthly bond buying, starting in January,” Israel said. “As a result, interest rates may continue to rise in the U.S., so investors may want to be mindful of investments that are sensitive to interest rate risk.”
Topp said stocks could possibly move higher as new home sales and construction lead the way for the economy as it continues to plod along. However, Topp said investors should keep in mind the possibility of volatility and have their portfolios adjusted according to their unique risk tolerance, investment time horizon and other factors.
“Continued improvement and efficiencies in technologies and services like 3-D printing, big data, crowdsourcing, fracking, cloud computing, and mobile technologies could be areas to watch for continued growth in 2014,” Topp said. “As always, appropriate investment strategies depend on the client’s investment objectives.”
Israel said that based on Bloomberg website information, the S&P 500's 2014 forward price/earnings ratio is currently around 16, which is in line with its historical fair market value.
“There may be continued strength in the equities markets in the U.S. and abroad in 2014,” Israel said. “In the past two years the equity markets, especially, the domestic stock market, have rebounded from the credit crisis of 2008 where the U.S. credit rating was downgraded and in 2011 where Europe announced it was struggling with (its) own financial recession.”
Israel said 2014 may bring continued growth of global equity markets as areas around the world like Europe continue to improve, and emerging markets look to break out of three years of underperformance.
“This region has a large growing middle class that should continue to increase their consumption of goods and services over the next decade," Israel said. “U.S. equity investors may need to be more choosy now, specifically, exploring sectors that have underperformed the broad markets over the past few years, namely, the more cyclical sectors like financials, industrials and energy."