5 Predictions for 2014 From a Wall Street Insider
So let's give the floor to Chicago's Nuveen Asset Management and its chief equity strategist, Robert C. Doll, as he canvasses the economy and offers some hard-hitting predictions for the new year.
If Doll is right, it could translate into a good one for bank savers and retirement investors. If not, well, we'll wait until 2015 to take Doll to task. (In Doll's 2013 predictions, he called a slow-growing economy, held back by higher taxes and weaker government spending from the sequestration, and a fast-rising stock market -- on the mark for 2013.)
Here are five of Doll's predictions for the economy, investors and personal finance consumers this year:
The U.S. economy will grow by 3%. Doll says the economy will grow at a faster clip, as housing starts surpass 1 million new homes and private employment hits an all-time high. "After several false starts, the economic recovery which commenced in mid-2009 will likely show some broader and stronger growth in 2014," he says. Aside from a stronger housing market and an improving jobs sector, Doll cites "easing lending standards, low inflation, all-time high net worth, rising capital expenditures, less fiscal drag and improving non-U.S. growth."
Interest rates will rise. The current 10-Year Treasury yield stands at 2.99% as of Wednesday, but Doll says 10-year yields will rise to 3.50% this year, which would likely hike borrowing costs for big purchases such as mortgages, cars and student loans. It's all about the Federal Reserve's move to back away gradually in the nation's mortgage bond market. "We expect the bear market in bonds that began some 18 months ago to continue as interest rates slowly normalize," Doll says. "While the Fed will keep policy rates anchored close to zero, the long-awaited tapering process will likely be completed during the course of 2014."
Inflation will remain low, but only through 2014. Consumer can breathe a sigh of relief, as Doll expects the inflation rate -- steady at 1.2% right now, to remain low. That should keep the costs of many goods lower, as prices are linked strongly to inflation. But in 2015, that scenario should change. "While no significant rise in inflation is likely, it is also likely that by the end of 2014, it will be clear inflation has made a bottom," he predicts.
Stocks will rise, but at a softer clip. Doll anticipates a 10% correction in the stock market, as last year has apparently "stolen" some of 2014's equity upside thunder. As the year goes on, though, stocks will make up ground. Doll doesn't put a hard number on it, but any gain past the rate of inflation would add more luster to stock portfolios, 401(k)s and individual retirement accounts.