It’s around this time of year that stock market commentators and experts put out a forecast for the next year ahead. They do that because they want to sound clever, but you only need to think back to their predictions a year ago to know that they more often than not end up with egg on their face. As I checked out a few before writing this, it seems many were predicting a catastrophic crash in 2013. I hope for their sake that they didn’t put too much money down on that bet…
As long-time readers know, I try to let the market itself tell me what’s going on. I then have to discipline myself to drown out all the noise and believe what it’s saying, however much I may or may not like it.
So what do I think could be on the cards for 2014…?
We can only deal with what we know at any given time. First exhibit is the current long-term chart of the S+P 500:
Just like the year before it, 2013 gave a profitable ride indeed. I think the temptation many forecasters have is to think that the year ahead has to be different to the previous year, that a fall must follow a rise. But this is an illogical way to think, and often is wrong where markets are concerned.
What you see above is a market in a stubborn uptrend. A little overbought currently, and due for a correction, yes, but the uptrend is intact until proven otherwise.
So how will this be proven otherwise?
Look at that wavy blue line on the chart. That’s the 30-week moving average price plotted alongside the price of the S+P. The trajectory of that line is crucial if you’re trying to predict the direction of a market, and it’s pointing steadily upwards at this point in time. As and when that line begins to flatten out we will need to reconsider if the uptrend is still intact.
There are some headwinds facing stocks in 2014, and the main one is company revenues. The easy money has already been made through aggressive cost-cutting, restructuring, and taking advantage of low interest rates where possible. To keep pushing this market upwards, from a fundamental perspective, we need to see earnings increasing, but now, the only way we’re going to see that is by revenues increasing. And that means people spending more.
The problem I see with that comes thanks to the politicians and their Orwellian new health care system and the government shutdowns. Interest rates can be as low as they like, but if people don’t have the money to spend, they won’t spend it, period.
So that’s the downside, and if that 30-week average price line flattens out or even starts pointing downwards, that will be the likely cause.
On the upside, we evidently still have a psychotic Federal Reserve that will stop at nothing to keep the party going. Sure, they tapered a little, but they’re still printing money at a frightening pace, and interest rates are still historically low. Banks and homebuilders should be the better performers in 2014, as their revenues are very sensitive to this policy. Healthcare companies are the direct beneficiaries of this Obamacare madness, and they are raising premiums in response, so watch those stocks too- remember, if it’s all about revenues rising, healthcare companies have the power to do this- it has now become law to buy their products (!).
Whatever happens, we will be walking you through 2014, helping you survive and prosper as events unfold… as the market itself provides us with forecasts. Our forecast is and always will be a rolling one. For now, it’s saying us that the uptrend is intact, with a short term and healthy correction on the cards.
Everything The Midas Legacy does will revolve around making 2014 a very happy new year for you. Watch this space…
Best,
Jim.
