2014 Outlook
In 2014, portfolios are likely to enjoy more independence from policymakers than in 2013, when the markets and media seemed to obsess over policymakers’ actions both here and abroad. This could be seen throughout 2013, during the government shutdown and debt ceiling debacle, the Federal Reserve’s (Fed) mixed messages on tapering its aggressive bond-buying program, the bank bailout and elections in Europe, and the unprecedented government stimulus referred to as “Abenomics” in Japan, among many other examples.
In the year ahead, there are many reasons investors can return to the basics of growing and preserving their portfolios and spend less time gauging the actions of policymakers, including:
- After two “clean” lifts to the debt ceiling since 2011, which ensured any risk of default on Treasury obligations was avoided, we are unlikely to see concessions in exchange for a third increase in 2014?—?making a high stakes fiscal battle unlikely.
- The Fed is likely to begin to taper its bond-purchase program, known as quantitative easing (QE), early in 2014, signaling a commitment to reducing its presence in the markets and transitioning to a post-QE environment.
- Europe is emerging from recession, which means less need for direct life support from the European Central Bank (ECB) or painfully austere fiscal policy as deficit targets are eased.
The economy and markets becoming more independent of policymakers while growth accelerates is likely to bolster investor confidence in the reliability and sustainability of the investing environment."