Stock Market Outlook 2014

People have always been interested in trying to predict the future. Trying to guess where the stock market is heading is no exception. This despite that most people know that it is impossible to know the answer. We are not going to try to guess how much shares will go up or down during 2014, just looking at how things look like at the moment.

2013 became a good for many stock markets around the world, much better than had been predicted. The US stock markets had a splendid year, S&P hit new all-time high and gained more than 26%. Much more than virtually all experts and gurus had predicted at the beginning of the year. Now almost all gurus believe that the S&P Index will go up again, not as much as 2013 but still more than ten percent.

Unfortunately, the economy has not grown as quickly as share prices. At the moment, the Schiller P/E ratio is at 25.38, the highest since the end of 2007. Some analysts who think that share prices will continue their upward journey are replacing the Schiller P/E ratio, so that the stock market does not look too overvalued. You can learn more about Schiller P/E ratio here and get both current and historic values.

Although the US shares look expensive, it is quite clear that the Federal Reserve does not want asset prices to go down. Most of the experienced professionals are convinced that quantitative easing will continue, any reduction is most likely to be just symbolic. At the same time, the Fed will keep interest rates low. So unless any major setbacks happens, it is quite possible that the S&P index will reach new all time highs during 2014. But it can prudent to remember that US shares are expensive, any setback can cause major drops.

The Nikkei index had a fantastic year, up more than 55%, the best year since 1972. One reason is that the Yen has dropped about 20% against the dollar. Add to that the massive economic stimulus programme and it is less surprising that the Nikkei index had such a good year. The question is if Abenomics will work. If it does, the Nikkei index will continue to rise. If Abenomics stalls, so will the Nikkei index.

London’s FTSE 100 increased 14% while the broader FTSE 225 did much better, up more than 25%. Almost all experts think that the FTSE 100 will break its old all-time high from 1999 during 2014. Many of the stock markets in Europe posted impressive gains. The German DAX hit new all-time high and is set to continue its upward journey in 2014. A lot of financial experts believe European shares will have a strong year. After several poor years, many of them look cheap. But it is all dependent on that the Euro gets through the year without any crisis. The weaker economies in Euroland still have a long way to go and even small issues could rock the boat.

Most so-called experts are very confident that 2014 will be a good year for shares, not as good as 2013 but still a good year. They certainly have strong allies, the major central banks will most likely be doing whatever they can to keep asset prices up. But it is also good to remember that the economic recovery since the global financial crisis is still painfully slow and there are plenty of potential problems that could stall the recovery. 2013 turned out to be a calm year, no significant setbacks happened. Will the same be true for 2014?

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