Each year I give my forecast for the coming year on the stock market, gold and other markets. For 2013, the stock market did what it usually does, moves in ways that confound the greatest number of analysts. Expect the same to happen in 2014.
Most of what I read from market prognosticators, as we move into the New Year, is quite bullish for stocks and quite negative for gold. Few are discussing anything but a minor correction, and many say to stay fully invested despite a likely pullback. You know what that means! Yes, 2014 is likely to be far more challenging for investors and gold is likely to have a better year.
Most forecasters also see interest rates rising, suggesting that the stock market will disregard it; as rising rates reflect better economic growth. I see it differently. Rising rates, if moving sharply, WILL bother the stock market. And based on current market conditions and Fed actions, the only way rates can decline (bonds rise) would be as a result of a “flight to safety”, because stocks move into a sharp correction. Either way, as I see it, contrary opinion means 2014 will be rockier for stocks than we have seen since the 2011 Eurozone scare brought a near 20% drop.
SLM’S FORECASTS FOR MAJOR MARKETS IN 2014
Dollar Index: Last year saw the dollar gain against sharply the yen, as Abenomics debased the Japanese currency even faster the U.S. could do to ours. The dollar did fall a bit vs the euro. This should be a rough year for the dollar against both currencies. Rising rates could help the buck a bit early in the year. After that, there could be significant downside for the dollar against all currencies. I see 8-10% risk for the dollar index.
Precious Metals: After gold had a 30% drop last year, most analysts see another rough year for the metal. I see a positive year coming for gold, with very little downside risk and a good chance for a trade near 1500 later in the year. Silver could be a giant winner, however. Copper looks to be breaking out after a long basing period. If economics support stronger metals, silver could see prices into the $32-$34 in the 2nd half of the year.
Oil: After the mid-year high, based on the structural changes in the energy complex and technological changes that have effected natural gas prices and production, I had expected weak prices for oil in late 2013. While declines came, the worst did not happen. Much risk remains for oil prices. I would be surprised to see anything over $105 a barrel for light crude, with risk down to the high 70s or low 80s. That’s a bet I’m making.
Treasuries: I have been negative on bonds since the top in late 2012 and saw, then, what I believed to be a secular change. I still expect much lower bond prices into the first half of 2013, bringing yields on the 10-year note to between 3.75% and 4%. As I said above, a fast upward move in interest rates is likely what brings the very overdue stock market correction.
Stock Market: The stock market’s strength in 2013 was a surprise to all but the most exuberant bulls. I was not one of them. Still, my cyclical analysis shows, and history supports, that there will be a major downside correction in the first half of 2014.
You can see that analysis on my youtube post. (Market Strategist, Steve Miller, sees risk of stock market correction.) If that analysis is correct, there could be a 12% to 20% decline by May. However, the stock market should recover quickly from a correction, with a strong second half and the major indexes ending little changed for the year.
SLM’S 15 BEST AND 15 RISKIEST STOCKS FOR 2014
SLM’s Best Stocks, with the best chance of over-performing the markets
FCX BHP GOLD CAT JOY BA SIRI P GLW HPQ MU UAL
Favorite three stocks: HL MOS MRVL
SLM’s Riskiest Stocks, with the best chance of under-performing the market
HTZ NTRS SCHW V SBUX SLB CMG SHLD URBN NFLX CRM SSYS
Worst three stocks: GMCR CREE JCP
The lists above were created from a combination of cyclical analysis, other technical tools, stock valuation and competitive factors. I expect to see a big rotation in 2014. And I am clearly biased by my sense that rising interest rates and a flattening yield curve will weigh on the financial sector, and firming commodity and metals prices will support metals and mining. For example, Hecla Mining (HL), a $3 stock, could more than double if I am just half right about silver prices. Corning Glass and MRVL, positive technically, are both well positioned to participate in the coming automotive mobile technology boom.
On the downside, Green Mountain Coffee (GMCR), in a very negative technical pattern, should be hurt by valuation, competition and a rebound in coffee input costs. JC Penny (JCP) is the one I’m most concerned about on the downside. Their cash burn and debt burden, and inability to come up with a competitive model have them in an existential crisis.
I hope this analysis helps you with your trading/investment choices. Of course, I could be very wrong on some of this analysis. That disclaimer aside; I’ll be trading most of these markets and stocks in 2014 based on the analysis I have shared.
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