Are Stocks in for Tough Sledding?
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<strong>Are</strong> <strong>Stocks</strong> <strong>in</strong> <strong>for</strong> <strong>Tough</strong> Sledd<strong>in</strong>g?<br />
Invest<strong>in</strong>g Guide at Deep Blue Group Publications LLC - After post<strong>in</strong>g scorch<strong>in</strong>g returns <strong>in</strong> 2013, stocks' flat<br />
per<strong>for</strong>mance <strong>in</strong> this year's first quarter seems anticlimactic. Many <strong>in</strong>vestors were no doubt expect<strong>in</strong>g the<br />
good times to keep on roll<strong>in</strong>g, while valuation-conscious types might have expected an even bigger<br />
per<strong>for</strong>mance drop-off.<br />
With the first quarter reced<strong>in</strong>g <strong>in</strong> the rearview mirror, we decided to get Morn<strong>in</strong>gstar readers' takes on the<br />
action. What has been the biggest surprise thus far <strong>in</strong> 2014, and (cue the crystal balls) what do they expect<br />
will happen dur<strong>in</strong>g the rest of the year?<br />
Some <strong>in</strong>vestors said the first-quarter uptick <strong>in</strong> stock market volatility was <strong>in</strong>deed jarr<strong>in</strong>g. Others said they<br />
were surprised to see decent per<strong>for</strong>mance from their bond hold<strong>in</strong>gs so far <strong>in</strong> 2014, given the widespread<br />
pessimism that has hung over the fixed-<strong>in</strong>come market <strong>for</strong> several years runn<strong>in</strong>g.<br />
Look<strong>in</strong>g <strong>for</strong>ward, many posters said they don't have high hopes <strong>for</strong> stocks <strong>for</strong> the rest of the year; a<br />
frequent refra<strong>in</strong> was that a still-sluggish U.S. economy will make it difficult to justify higher stock prices<br />
when they're already on the lofty side.
To read the complete thread or share your biggest <strong>in</strong>vestment surprise so far <strong>in</strong> 2014's early days--or your<br />
expectation of what lies ahead--click here.<br />
'Bonds Have Behaved Better Than I Expected'<br />
<strong>Stocks</strong>' herky-jerky pattern--up big one day, down big the next--has come as an unwelcome development<br />
<strong>for</strong> homebrewer <strong>in</strong> 2014's early <strong>in</strong>n<strong>in</strong>gs. "My biggest surprise is how volatile the market has been; I expected<br />
some but not this much. I th<strong>in</strong>k fear is driv<strong>in</strong>g this market more than reason. The fear of be<strong>in</strong>g <strong>in</strong> the market<br />
when bad news hits causes sell<strong>in</strong>g and the fear of not be<strong>in</strong>g <strong>in</strong> the market when it goes up is causes buy<strong>in</strong>g."<br />
Dawgie, meanwhile, has been surprised by the cont<strong>in</strong>ued poor per<strong>for</strong>mance of emerg<strong>in</strong>g-markets stocks<br />
and bonds and the cont<strong>in</strong>ued relatively poor per<strong>for</strong>mance of <strong>for</strong>eign stocks <strong>in</strong> general compared with<br />
domestic [stocks].<br />
Meanwhile, several posters said they expected fixed <strong>in</strong>come to be their portfolios' major pocket of<br />
weakness <strong>in</strong> 2014, but bonds have actually done quite well.<br />
"I was surprised by <strong>in</strong>terest rates, not because they fell, but how far down they went," said Darw<strong>in</strong>ian.<br />
BMWLover observed, "I'm surprised that the weather has sapped as much out of the economy as it has,<br />
especially s<strong>in</strong>ce the west was actually warmer and dryer than average. The result was that bonds have<br />
behaved better than I expected. I was expect<strong>in</strong>g to see the 10-year Treasury bond [yield<strong>in</strong>g more than] 3% at<br />
this po<strong>in</strong>t <strong>in</strong> time." (The 10-year Treasury is currently yield<strong>in</strong>g about 2.75 %.)<br />
Ditto <strong>for</strong> artsdoc, who wrote, "I'm a bit surprised that my fixed-<strong>in</strong>come side of my portfolio has returned<br />
more than my equity side."<br />
But even as some posters were brac<strong>in</strong>g themselves <strong>for</strong> poor fixed-<strong>in</strong>come per<strong>for</strong>mance and better returns<br />
from their equity portfolios, other respondents said stocks' meh per<strong>for</strong>mance didn't surprise them at all.<br />
"The biggest first-quarter surprise <strong>for</strong> me is that the correction didn't arrive yet, and some nice ga<strong>in</strong>s have<br />
been made," wrote sportsden.<br />
On the same page is atomiccab: "I am surprised that I am even with my end-of-year numbers. I expected<br />
the markets to go down after such a large runup last year."
Several posters po<strong>in</strong>ted to REITs as be<strong>in</strong>g a pocket of unexpected strength thus far <strong>in</strong> 2014.<br />
Dawgie was one of the respondents who had been expect<strong>in</strong>g to see REITs revert to the mean. "Although<br />
they were off <strong>in</strong> 2013," this poster wrote, "their five-year returns are still very high."<br />
Rathgar hoped to add to the asset class as valuations improved, but that hasn't panned out. "I bought<br />
REITs (Vanguard REIT Index ETF (VNQ)) low <strong>in</strong> December and planned to add monthly, expect<strong>in</strong>g lower<br />
prices. With REITs up 10% I might have to add to another asset class."<br />
Audreyh1 th<strong>in</strong>ks she can expla<strong>in</strong> REITs' late 2013 downturn--and subsequent bounceback. "Th<strong>in</strong>gs that<br />
come under a lot of sell<strong>in</strong>g pressure late <strong>in</strong> the year--such as REITs and municipal bonds <strong>in</strong> 2013--seem to<br />
pop early the next year because the tax-loss sell<strong>in</strong>g is over," she said.<br />
'Go<strong>in</strong>g Forward Will Be a Bit of a Slog'<br />
Look<strong>in</strong>g <strong>for</strong>ward, many <strong>in</strong>vestors who posted predictions said they're not expect<strong>in</strong>g a lot from either the<br />
stock or bond market <strong>for</strong> the rest of the year.<br />
"I suspect that go<strong>in</strong>g <strong>for</strong>ward will be a bit of a slog," wrote artsdoc. "Valuations are a lot higher than last<br />
year at this time, and I'm not expect<strong>in</strong>g much more than tread<strong>in</strong>g water from my fixed-<strong>in</strong>come <strong>in</strong>vestments."<br />
On the same page, FidlStix quipped, "This bull's runn<strong>in</strong>g low on testosterone. Hav<strong>in</strong>g said that, I don't<br />
th<strong>in</strong>k the trap door is go<strong>in</strong>g to drop out from under the market <strong>in</strong> 2014--unless we have a world crisis that<br />
makes Ukra<strong>in</strong>e look like a romp through the playground. We'll end the year about where we started. It'll<br />
be a bouncy year, though. Investors with strong stomachs who can ignore the greater volatility will do OK.<br />
Those who can't are likely to sell at the wrong time and shr<strong>in</strong>k their nest eggs."<br />
Bnorthrop believes that the rest of the year will feature a cont<strong>in</strong>ued push-pull between stocks and bonds.<br />
"I expect 2014 to rema<strong>in</strong> <strong>in</strong> a relatively flat dynamic tension between stocks and bonds. Cont<strong>in</strong>ued<br />
suppression of <strong>in</strong>terest rates lead to risk-on <strong>in</strong>vestments; Fed rumbl<strong>in</strong>gs/expectations of rate <strong>in</strong>creases lead to<br />
risk-off maneuvers. Slow-cook economic improvement gives the nod to equities."
Jomil agreed that the markets will muddle along, noth<strong>in</strong>g more. "I expect more of the same because we are<br />
<strong>in</strong> a trader-controlled market with their ability to create and use volatility to an advantage <strong>in</strong> f<strong>in</strong>d<strong>in</strong>g fleet<strong>in</strong>g<br />
pockets of value to buy and sell <strong>in</strong> milliseconds be<strong>for</strong>e the trend changes. To beat them at this game, one has<br />
to buy and hold at lower cost, be lucky, or have their resources."<br />
Homebrewer offered a host of macroeconomic and market predictions, <strong>in</strong>clud<strong>in</strong>g this: "If the total U.S.<br />
market ends at or above zero, I will be surprised."<br />
'There Will Be No Buyers Left'<br />
Yet other <strong>in</strong>vestors said they're even more pessimistic about stocks' prospects.<br />
Sportsden <strong>for</strong>esees a correction later <strong>in</strong> the year. "I expect a strong correction by October, s<strong>in</strong>ce the market<br />
seems to be ahead of itself--but, of course, nobody really knows."<br />
Also expect<strong>in</strong>g a big stock drop--not imm<strong>in</strong>ently but eventually--is Darw<strong>in</strong>ian. "I anticipate more drops,<br />
probably of <strong>in</strong>creas<strong>in</strong>g depth, followed by partial or full recoveries. The market is overpriced, but it can't<br />
plummet yet, because there is still too much money on the sidel<strong>in</strong>es. Once this has been sucked <strong>in</strong>, through<br />
'buy-on-the-dips' strategies, then the big dive can beg<strong>in</strong>, because there will be no buyers left."<br />
Homebrewer advised that <strong>in</strong>vestors com<strong>in</strong>g late to the party (and asset-flows data <strong>in</strong>dicate there are<br />
many of them) could get burned. "People enter<strong>in</strong>g the bull late will drive P/E ratios up and get burned<br />
when the bear takes hold."<br />
Meanwhile, BMWLover anticipates that a correction could be right around the corner. "<strong>Stocks</strong>, I keep<br />
wait<strong>in</strong>g <strong>for</strong> them to correct," this <strong>in</strong>vestor wrote. "I th<strong>in</strong>k we'll see that <strong>in</strong> the second quarter with the first<br />
quarter's earn<strong>in</strong>gs reports giv<strong>in</strong>g sellers a reason to pull back and buyers pause."<br />
So what will per<strong>for</strong>m decently? Rathgar th<strong>in</strong>ks that unloved <strong>in</strong>flation hedges may do all right. "I th<strong>in</strong>k<br />
<strong>in</strong>flation hedges will have a good year s<strong>in</strong>ce most <strong>in</strong>vestors aren't th<strong>in</strong>k<strong>in</strong>g about <strong>in</strong>flation and these<br />
<strong>in</strong>vestments were cheap com<strong>in</strong>g <strong>in</strong>to 2014--REITs, commodities, Treasury Inflation-Protected Securities,<br />
and global bonds.
'No Idea'<br />
F<strong>in</strong>ally, it wouldn't be a "make your predictions" thread without at least a few <strong>in</strong>vestors comment<strong>in</strong>g on the<br />
folly of try<strong>in</strong>g to predict the market's direction.<br />
Dawgie wrote, "What do I expect <strong>for</strong> the rema<strong>in</strong>der of the year? No idea. I don't put much credence <strong>in</strong><br />
market <strong>for</strong>ecasts, and I certa<strong>in</strong>ly lack the <strong>in</strong>sight to make any."<br />
And Chief K joked, "My expectation <strong>for</strong> the market: About half of the people who buy shares of stock <strong>in</strong> a<br />
particular company will get 'the better end of the deal.' About half of the people who sell shares of stock <strong>in</strong> a<br />
particular company will get 'the better end of the deal.' I won't know which is which until after it's all over."<br />
This <strong>in</strong>vestor's takeaway? "Index, repeat Index."<br />
Asset-allocation parameters, not market prognostications, guide the way <strong>for</strong> Audreyh1. "Fortunately my<br />
<strong>in</strong>vestment strategy doesn't require me to guess which asset class will outper<strong>for</strong>m. Whatever happens, I'll<br />
rebalance next January if my AA is sufficiently out of whack by then. What really surprises me is that the<br />
first quarter is almost over! Time flies!"<br />
Article Source: http://news.morn<strong>in</strong>gstar.com/articlenet/article.aspx?id=641337&SR=WIG227