• Print
  • Default text size A
  • Larger text size A
  • Largest text size A

Special report: 2014 outlook

Will the momentum for stocks continue? Here’s what investors need to know right now.

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.

After a blockbuster 2013 for U.S. stocks, which gained more than 30% on the way to setting all-time highs, investors have numerous opportunities to consider, along with some unique challenges.

Here are the key things to know right now, according to a range of experts featured recently in Viewpoints:

  • Stick with stocks as economic growth solidifies. Stocks may continue to outperform bonds and cash. Focus on companies with high earnings growth potential and reasonable valuations. If it is appropriate to your goals, investment objectives, and risk tolerance, consider financial, tech, and health care stocks.
  • Brace for some volatility. Stay diversified. If you’re a long-term investor and it is in line with your investment objectives and goals, consider using pullbacks to buy strong companies at reasonable prices. If you’re a trader and are willing to assume the risk of investing in options, consider strategies like calendar and other spreads.
  • Rates may inch higher, not spike. Bonds still play a role for income and diversification. The Fed could keep short rates low, and much of the change in longer rates may have already happened.
  • Search for income beyond conventional bonds. If maximizing income is part of your investment objectives and you are willing to assume the risk, consider a mix of high yield, floating rate, convertibles, and equity income.
  • Look abroad for opportunities. Europe’s economic cycle appears to be turning positive, and many foreign companies have lower valuations than their U.S. counterparts.
  • Watch for a transition in emerging markets. Emerging market countries, such as Indonesia, Turkey, and South Africa, could suffer from U.S. central bank tapering. However, others—such as Mexico—may benefit from the next phase of growth.

Overall outlook

Global growth solidifies

Despite a diverse set of risks to the global marketplace, economic growth continued to recover from recession levels in 2013. Industrial economies, including the United States, showed remarkable resiliency last year, and both the U.S. and Europe appear poised for continued economic growth. Japan and China are also reaccelerating, though some of the fundamentals in these countries look more worrisome.

Stick with stocks for long-term growth

Stock prices are higher. But equities may still be attractive, compared with bonds and cash, as valuations remain reasonable, by historical measures. Many companies still have solid earnings growth. With lots of cash on corporate balance sheets, share buybacks and initial public offerings could support stocks. Likewise, a continued rotation out of cash and bonds and into stocks could make 2014 another positive year for equities, even if it doesn’t match the gangbuster performance of 2013.

In 2013, strength in housing, energy, and manufacturing propelled the U.S., and could sustain the market’s momentum in 2014. Within the equity markets, stocks with attractive earnings multiples and long-term growth prospects might outperform.

Brace for potential volatility

Risks remain, of course, and investors should be cognizant of the possibility for heightened volatility, particularly in the first half of the new year. The impetus could come from uncertainty surrounding the U.S. central bank’s attempts to potentially taper its historic bond-buying program and remove some of the stimulus it injected into the economy after the financial crisis.

Also, keep an eye out for a possible slowdown in China, tax hikes in Japan and France, key elections in emerging markets, and another unexpected market or geopolitical jolt. For long-term investors, this means staying diversified and rebalancing your portfolio as needed.

For traders, it might spell opportunity. Consider volatility and risk-management techniques like calendar and other spread options strategies.

Think globally

A view from abroad

After the run-up in U.S. equities, there may be relative bargains abroad—but you need to know where to shop. Europe’s improving economy could lead to increases in demand and improved profitability for cyclical industries. Emerging markets have slumped, though their valuations have become more attractive. Tapering could pose issues in many markets, but won’t necessarily mean negative performance for the year.

Countries prioritizing long-overdue structural reforms, such as Mexico, should benefit from the next phase of growth, while countries dependent on foreign capital, such as India, risk further downward pressure on their currencies as tapering commences.

The continued search for income

Income ideas for 2014

Investing for income

Many sectors of the debt markets struggled in 2013, as rising rates posed a challenge for bond prices. While much of the impact of Fed tapering may already be priced in, there could be more volatility and rates could continue to inch higher in 2014. Bonds still have a role in most portfolios as a diversifier and income source. But for capital gains potential and higher yields, it may be time to consider a multi–asset class approach that, if appropriate to your investment objectives and risk tolerance, includes high-yield, floating-rate, and non-bond income, including dividend-yielding stocks.

Investors worried about price losses may want to consider short-duration strategies and bond ladders. Investors with large cash positions for whom immediate liquidity is not a primary concern may want to think about inching out the yield curve with short- or limited-term fixed income investments, if their investment timeline and risk tolerance support doing so.

Getting tactical

Sectors in focus

Areas of opportunity

Consumer discretionary and health care were the top-performing sectors in 2013. Which sectors might finish atop the leaderboard in 2014?

Our investment experts believe financials, technology, and health care may provide investors with some of the most attractive opportunities in the coming year. Specifically, alternative investment companies, mobile messaging, clouding computing, and specialty pharmaceutical stocks may be worth exploring.

Learn more

  • Facebook.
  • Twitter.
  • LinkedIn.
  • Google Plus
Please enter a valid e-mail address
Please enter a valid e-mail address
Important legal information about the e-mail you will be sending. By using this service, you agree to input your real e-mail address and only send it to people you know. It is a violation of law in some jurisdictions to falsely identify yourself in an e-mail. All information you provide will be used by Fidelity solely for the purpose of sending the e-mail on your behalf.The subject line of the e-mail you send will be "Fidelity.com: "

Your e-mail has been sent.
Before investing, consider the investment objectives, risks, charges, and expenses of the fund, exchange-traded fund, or annuity and its investment options. Call or write to Fidelity or visit Fidelity.com for a free prospectus or, if available for the options, a summary prospectus containing this information. Read it carefully.
These opinions do not necessarily represent the views of Fidelity or any other person in the Fidelity organization and are subject to change at any time based on market or other conditions. Fidelity disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Fidelity fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any Fidelity fund.
Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments.

Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Prior to trading options, please read Characteristics and Risks of Standardized Options, and call 800-343-3548 to be approved for options trading.  Supporting documentation for any claims, if applicable, will be furnished upon request.

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.)  Fixed income securities also carry inflation risk, liquidity risk, call risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

High-yield bonds are subject to credit risk, which increases as the creditworthiness of the issuer falls. It is important to pay attention to changes in credit quality, as less creditworthy bonds are more likely to default on interest payments or principal repayment.

Floating-rate loans generally are subject to restrictions on resale and they sometimes trade infrequently in the secondary market, and as a result may be more difficult to value, buy, or sell. A floating-rate loan might not be fully collateralized, which may cause the floating-rate loan to decline significantly in value.

Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. These risks are particularly significant for funds that focus on a single country or region.
Past performance is no guarantee of future results.
Diversification and asset allocation do not ensure a profit or guarantee against loss.

As with all your investments through Fidelity, you must make your own determination whether an investment in any particular security or securities is consistent with your investment objectives, risk tolerance, financial situation and your evaluation of the security. Fidelity is not recommending or endorsing this investment by making it available to its customers.

Votes are submitted voluntarily by individuals and reflect their own opinion of the article's helpfulness. A percentage value for helpfulness will display once a sufficient number of votes have been submitted.
Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, RI 02917
676129.1.1