After a strong 2013 for US equities, this year got off to a shaky start. But despite a choppy first quarter, advisers remain bullish about US stocks and expect high single-digit returns in 2014.

“[2013] was a phenomenal year,” says Harold Elish, managing director at UBS Private Wealth Advisor. “I don’t think anyone expects 2014 to be similar.” While optimistic, he predicts the market will see returns of about 6 per cent this year overall as attitudes about US stocks remain guarded.

Many economists believe that this year will be crucial for markets still suffering from the blows of the financial crisis, says Mr Elish. Employment and revenues are still growing slowly. While there is potential for consumer confidence to pick up in the US, along with the housing market and manufacturing jobs, “the next couple [of] months will be watched with great interest”, he adds.

Stephanie Ackler, managing director at Wells Fargo Advisors also expects high single-digit returns, but thinks 2014 will bring more volatility than last year.

Stephanie Ackler
Stephanie Ackler: expects more volatility

Ms Ackler acknowledges that there are always pockets of market unrest, but says the foundations of the economy look positive for gross domestic product, net worth and job growth as consumers now have more money to spend and appear ready to do so. She sees positive signs in many sectors, from healthcare to manufacturing.

Despite optimism now, says David Joy, chief market strategist at Ameriprise Financial, the latter part of 2014 may not be as promising for investors. But he finds stock valuations are fairly priced at the moment.

Changes in the Federal Reserve policy unsettled investors last year, and are likely to do so again, he adds. By Labor Day in September, the market may begin to anticipate changes, pushing some people to take their profits and run rather than wait and see what happens.

Mr Elish agrees that the tapering of quantitative easing will cause some anxiety, but says it should not adversely affect markets. Instead, more attention should be given to whether the gap between the stock market’s success and the economy’s more gradual recovery narrows.

Some advisers warn that while value can still be found in the market, it is not there as broadly as in 2013, and requires careful stock selection. There is a range of other factors to weigh up, too.

The snow storms driving Americans inside put a freeze on consumer spending this winter, causing some market uncertainty, advisers say. “Once [the cold] goes away, the data will firm and stocks will go higher,” says Mr Joy. The second quarter of 2014 is likely to see a boost for the stock market as consumers start to spend again he says.

Harvey Kadden, managing director at Morgan Stanley Wealth Management, says that problems abroad, particularly the crisis in Ukraine, could help support the continued success of the US markets. “With the turmoil in the world today, you see a lot of money flow coming to the US,” he says.

Mr Kadden notes that emerging markets should be approached individually and not just as one asset class, but he remains sceptical. “There’s a little too much uncertainty at this point,” he says, adding that developed European markets and Japan offer better opportunities akin to those in the US.

“You really ought to think in regional terms instead of across the board,” agrees Mr Joy. Emerging markets can be divided into categories of attractiveness for investors, he says. The politically volatile countries, such as Argentina or Turkey, should be avoided, he says, while the most attractive markets are those in the Pacific Rim.

However, temporary unrest in one European country does not mean the whole continent must be avoided.

It is important to remind clients that hiccups occur, and that they need to think long term, says Ms Ackler.

There is growth to be found in international equities, she says. She favours a cautious approach in emerging markets because of the greater volatility, but says that investors should look carefully at the potential in specific countries.

Most good advisers would recommend their clients diversify and invest an amount in international equities, says Mr Elish – but the US market’s success story in 2013 meant investors who diversified too much lost out.

Global growth potential leaves advisers hoping that international equities will be more successful this year, but emerging markets in particular remain difficult, says Mr Elish. “It’s certainly testing the patience of investors that want to be diversified,” he adds.

Mr Joy adds: “Advisers are mindful of the full valuations of the US.” Apart from Ukraine, there is a lot of interest in Europe. Japan is also attractive, although Mr Joy says he remains more agnostic about the country than others.

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