There’s Still Room at the Top for U.S. Stocks

U.S. stocks have gotten off to a weak start in 2014 after historical gains last year, but Money and Markets’ investing editors see plenty of signs that there’s still room for equities to grow in the coming months.

The S&P 500 Index of the largest U.S. stocks is little changed this year after surging more than 30 percent last year, its biggest increase since 1997.

“I have to be bullish on the equity market because liquidity is still there, the Fed is still accommodative, economic conditions are improving worldwide, and banks are healing worldwide, especially in Europe,” said Douglas Davenport, editor of the All-Weather Investor, on a weekly call with Money and Markets colleagues.

The latest indicator was Wednesday’s report that U.S. companies added 238,000 jobs in December, the biggest increase in 13 months, with the construction sector showing job growth that hasn’t been seen since 2006. That’s just more evidence that the world’s biggest economy is gaining strength.

With that in mind, Don Lucek, editor of The Weiss Million-Dollar Ratings Portfolio, is focusing on cyclical stocks, which tend to do well in economic upswings. Earnings season, just around the corner, will give investors more insight as companies relate their outlooks for the year.

While the broader market has struggled in the past week, financial stocks have “been on fire,” editor Mike Larson pointed out, as banks should profit from the widening yield spread as bonds continue to falter.

“Banks should do very well,” said Larson, who edits the Safe Money Report. “That’s pointing the direction for yields, and I would continue to pay attention to that message.”

While defensive sectors such as health care and utilities led the increase among stocks early last year, they’ve given way to financials and technology companies. “And I think that’s an important tell right there,” said Mike Burnick, co-editor of the Wealth and Liberty Alert service. “I think that’s going to be the film we see going forward in 2014 and beyond,” with more cyclical-oriented sectors, especially those with foreign exposure, leading the market this year.

Larson, who closely follows the bond market, sees no relief in sight after Treasuries last year had their first annual decline since 1999.

“I’ve said for a long time that I think bonds are a sucker’s bet,” he said. “Money is going to continue to bleed out of bonds and into other assets, and nothing I see in the data changes my mind.”

Best wishes,

The Money and Markets Team