The Merrill Lynch Investment Strategy group, Martin Mauro and Cheryl Rowan has their look ahead to 2014. I don’t agree with all of these, but they are interesting and thought provoking:
Themes for 2014
1. Be an owner, not a lender
Fed tapering with accompanying higher interest rates, an improving US economy, and healthy earnings and sales growth all favor stocks over bonds.
2. Cash is trash, but high yield is not junk
High yield bonds and senior loans will be among the best performing sectors of the
bond market in 2014, in our view, while returns on money market funds and other
short-term assets should remain near zero until early 2016.
3. Pick stocks, not markets
Falling correlations among individual equities suggest divergent returns and an
environment that favors stock selection over indexing.
4. Bigger is better
Small caps have outperformed large caps in 2013, but are now expensive and not expected to outperform
large when global growth accelerates.
5. Look after tax, not before tax
For most investors, even those in lower tax brackets, yields on municipal bonds are higher than the after-tax yield on other bonds.
6. Warehouses over townhouses
We may be in the early stages of an equity market leadership shift away from consumer-related sectors and toward industrials and global cyclicals.
7. Ride the curve
We recommend some exposure to intermediate-term maturities, primarily through portfolio laddering,
even though we expect yields to rise.
8. Find the next Google
In our view, some of the best equity themes can be found among innovative companies that benefit from their investments in technology.
9. Look across the pond
European recovery is only just beginning, in our view, and the region is poised for a longer and more sustainable rally in the equity market in 2014.
10. Don’t get real
We expect a modest decline in a broad array of commodity prices in 2014, caused by Fed tapering, higher US rates, a stronger dollar, slowing economic growth in China, and oversupply.
You can see the full video here.