Stock markets rallied throughout 2013, fuelling investors to
flow massive amounts of money back into equities. And with 2014 expected to be
a better year for the global economy, safe-havens’ like gold and bonds are
starting to lose their shine.
“Gold was nothing but a comfort food over the past few years
and the fact that the global economy is starting to improve is the main reason
gold isn’t doing so well now,” says Benjamin Tal, deputy chief economist of
CIBC World Markets. He adds, “That will
continue to be the case if you take a two or three year perspective.”
His outlook for bonds isn’t much better. “The stock market will outperform the bond
market by a wide margin in 2014,” says Tal.
“At this stage of the cycle, with interest rates starting to rise, the
long-term rally in the bond market is over.”
“Interest rates will eventually start rising and
dividend-paying stocks will be less attractive than high-beta stocks,” he
added. “I won’t reduce my position in dividend-paying
stocks but I won’t add to it. I will add
to my position in cyclical stocks.”
Cyclical stocks are those that rise and fall with the
business cycle; some examples include car manufacturers, airlines, furniture
retailers, clothing stores, hotels and restaurants.
Out Look for TSX
During the past year, the TSX grew by about 2%, quite a bit
less than the robust 20% advance enjoyed south of the boarder in the U.S.
during the same time period. Tal
predicts this gap will close in 2014.
“Historically speaking, every year that the TSX lagged the
S&P 500 by a significant margin, the following year the TSX, on average,
advanced by 16%,” he says. “The U.S.
economy will surprise on the upside, especially in the second half of
2014. We will probably see more demand
for (Canadian) exports such as energy and commodities.”
Tal adds he is bullish on cyclical sectors – “the high-beta
segment of the market-as those stocks are more sensitive to the global
cycle. Energy and utilities will do fine
and commodities in general will do okay and given that we’ve seen some
improvements in the commodity prices.”
As for financials (bank stocks), the probability of
long-term interest rates rising in the second half of 2014 gives us reason to
be optimistic.
“The long-term interest rates will be rising while the
short-term rates will more or less stay where they are, which is always a
positive for Canadian banks,” says Tal.
“Add to it the fact that credit, although weak, is not getting weaker. It means we won’t see the negatives we’ve seen
relative to credit impacting the Canadian banks as they have over the past two
years.”
The past year has shown us once again that it is not easy to
predict what will happen in the markets.
Even though we have had a positive year; I continue to believe that a
well-diversified portfolio that includes both equity and fixed income funds
makes sense for most investors. However, it seems for the year ahead; Equities
still remain the best way to benefit from long-term economic growth and to stay
ahead of inflation.
Should you have any questions about your investment
portfolio or the markets in general, please don’t hesitate to give me a call.
Happy New Year!
Tracey
Source: Original
article published on Advisor.ca by Vikram Barhat, 12-17-13
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