Just as it can be hard to get back into the swing of things after a long holiday vacation, the market has gotten 2014 off to a sluggish start after climbing almost 30% in 2013 and surging to new highs.
A slow start doesn’t necessarily mean a slow year, and I do expect 2014 to end up being positive for stocks. However, I also expect more bumpiness and unpredictability along the way as the market consolidates some of its gains and deals with a fresh set of obstacles in the year ahead.
Economic data will continue to play a key role in market performance, as investors look for further signs of recovery. So far, results have been a little mixed outside of the United States, especially in China. Auto sales were a bit tepid for December, but should be taken with a grain of salt after many months of continued year-over-year gains and optimism among major players in the industry.
We’re also just about to head into a new earnings season. Company data will be closely watched for year-end performance, and guidance should help to clear up the tea leaves a bit for the quarter ahead.
The Federal Reserve will also remain the spotlight. Janet Yellen got the go-ahead from Congress on Tuesday to become the new chairman of the central bank. Now that we know quantitative easing (QE) tapering will begin this month, the question becomes just how fast we accelerate beyond the $10 billion reduction in bond buying that is already on the table.
So where does that leave me? The heady rise we saw in the markets last year means that stock picking is going to be more important than ever. I don’t expect to see a rising tide lift all boats again, so l focus my approach on picking companies with good growth (in revenues and earnings) prospects, individual catalysts and strong trends.
I already prepared for this by locking in profits during the rally and increased cash positions to make funds available for new opportunities. In particular, I’ll continue to watch the dominant tech sector, as well as the biotech industry for impressive stocks with standout drug therapies that can transform healthcare.