Economic data continues to be mixed, with preliminary Q3 GDP
growing much faster than forecasted, but small business sentiment
is falling again. These figures, along with other recent data,
support my view that global growth will remain tepid and that 2014
will resemble this year in many ways; US politics, monetary policy,
and most significantly, the investment landscape will all resemble
what we've experienced in 2013.
Contrary to popular thinking, I do not believe the Federal Reserve
will change monetary policy in 2014. While US and global economic
growth should continue to improve, it will do so at the same slow
pace as over the past two years.
Within the United States, I expect official unemployment figures to
drift below 7%, mostly as a result of a reduction in the labor
participation rate and increased part-time employment, but also due
to actual employment gains on the heels of increased manufacturing
Unfortunately, the greatest risk to our economic recovery remains
dysfunction in Washington, DC - something Fed officials are very
aware of and worried about. Ongoing partisan politics will likely
cause further uncertainty in the early part of the year as the debt
ceiling debate is reignited.
As these events unfold, market participants will likely take a
similar view as they did last October, viewing the dysfunction and
related economic damage as a signal that the Fed will not be able
to taper after all. Lastly, I believe that the housing market will
continue to improve, however I do expect a leveling off in price
Although some asset purchase tapering could occur, the Fed will
maintain its current expansive monetary policy steps. While
political pressure will drive incoming Chairwomen Janet Yellen to
alter policy slightly, weak economic data and political turmoil
will keep most of the current extraordinary policy steps in place.
As long as global growth remains below its long-term average of 4%,
central banks around the world, including the Federal Reserve, will
continue to be more concerned about deflation than inflation.
Cyclical stocks should be beneficiaries of this environment.
Separately, in spite of continued anticipation of "the great
rotation out of bonds," investors will likely remain committed to
the asset class, even if there is a pickup in volatility for bonds.
By reducing their bond portfolio's duration and average maturity,
investors will continue to benefit from the diversification bonds
offer. In my view, the
iShares Short-Term High Yield ETF
(NYSEARCA:SHYG) is a good choice heading into 2014.
With regards to stocks, I expect companies with above
category-average revenue growth to be among the best performers.
Heading into 2014, I still favor the food and beverage sector --
well represented in the
Power Shares Food & Beverage Sector ETF
(NYSEARCA:PBJ); consumer discretionary companies represented by the
SPDR International Consumer Discretionary ETF
(NYSEARCA:IPD); large-cap multinational pharmaceutical companies
represented by the
SPDR International Pharmaceutical ETF
(NYSEARCA:IRY); and the transportation sector, best represented by
iShares Transportation ETF
(NYSEARCA:IYT). Some of my firm's favorite stocks in our Revenue
Buster Portfolio include the following:
Bed Bath & Beyond
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Gary Goldberg Financial