Pumping the Breaks on a Bullish Market

Bullish on 2014!

Alright, the exclamation point is mine. But the headline belongs to Barron’s. The cover story in question paints a particularly rosy picture for stocks in the year ahead. In fact, the strategists featured in the article expect the market to rise 10% next year, “boosted by a stronger economy and fatter corporate profits”.

Man, I wish I was this bullish on the market heading into 2014. One year ago, it was easy to find reasons to like stocks. Sentiment was in the gutter. Investors (and the financial media, for that matter) were collectively freaking out over the fiscal cliff. And hardly any of the big forecasters saw a significant broad market rally in the year ahead.

That’s a recipe for unexpected gains. One glance at the scorecard shows just how wrong everyone was…

2013 Asset Performance

Now, I’ll be the first to tell you that I have no idea how far the broad market will climb (or drop) in 2014. But my best guess is that next year’s performance will not come close to rivaling the incredible year stocks have enjoyed in 2013.

In fact, I think stocks will drift lower sometime close to the spring — after we see even more investors chase last year’s performance by piling sidelined cash into stock funds once the calendar rolls over. Notice that I’m not predicting a crash — but lackluster performance and a correction are by no means out of the question for the first half of 2014…

Bullishness is beginning to reach fever pitch. Sure, there are still plenty of top-callers out there. But heading into the holidays, it feels like they’re being drowned out by off-the-charts sentiment readings and big expectations for the broad market.

There’s no need to run and hide from stocks just yet. But you can start preparing now for the new trading year.

Regards,

Greg Guenthner
for The Daily Reckoning

P.S.  There are only 10 days left in this trading year, and as such, I showed readers of the Rude Awakening email edition a few trends to look out for as it comes to a close — including 5 important numbers to watch. If you didn’t get the Rude Awakening email edition, you only got half the story. Don’t miss out. Sign up for FREE, right here to get the full story.