10 Predictions For 2014, From Bank Of America Merrill Lynch Global Research

10 Predictions For 2014, From Bank Of America Merrill Lynch Global Research

A continued bull market, steady growth in the U.S. economy and higher yields are all on the horizon in 2014, according to Bank of America Merrill Lynch Global Research's outlook published this week.

1. The S&P 500 Index (SPX) (SPY) to rise to 2000 and the MSCI All-Country World Index (ACWI) to reach 444 by year-end 2014, with price return of approximately 11% and earnings growth of 7%.

2. U.S. and global economic GDP growth to accelerate in 2014, to 2.6% and 3.5%, respectively. The U.S. economy is expected to expand in the second half of the year at a 3% rate, driven by the end of fiscal austerity and pent-up demand for capital goods.

3. Emerging markets (EEM) should rebound and prove resilient in 2014, with modest growth recovery and rising productivity. Emerging market GDP is expected to rise 4.9.

4. U.S. interest rates will move higher, with 10-year Treasury yields (TLT) expected to reach 3.75 percent.

5. Fixed income will face a difficult year as tightening spreads and rising rates could make total returns challenging for fixed income investors. BofA says corporate bonds (LQD) are favored over government bonds. U.S. high-yield bonds may offer the best potential, with a total return of 4% to 5%. Europe should lead the way among investment-grade bonds with a return of up to 2%, followed by the U.S. at 1.5%.

6. Global inflation rate to remain stable at close to 3%.

7. The strengthening of the U.S. economy is expected to boost real estate values by another 5% in 2014.

8. Global commodities prices will be contained in 2014 by oversupply in key sectors, especially global oil (USO) and grain (JJG), a strong U.S. dollar (UUP) and modest global economic growth. Gold values are expected to drop to $1,250 an ounce in the first quarter, before rebounding to normal levels later in the year. Other metals not in surplus, including zinc, platinum and industrial metals could outperform.

9. A global rotational shift will continue, displayed by the outperforming of real estate (XHB) over commodities (DBC), stocks over bonds, developed markets over emerging markets, small cap (IYM) over large cap, high yield over investment grade and cyclical over defensives.

10. Institutional investors, including insurers, sovereign wealth funds, central banks and even U.S. pension funds, are expected to take part in a "reverse rotation," selling stocks and buying bonds.
 

Courtesy of Adam O'Daniel, bizjournals.com