The last time I said something good about the economy one of my readers called me delusional. Fortunately I didn’t let that opinion change my investment strategy and it paid off big. That experience points out that if your investments are being guided by anything other than cold, hard facts, you’re going to lose money. You can be politically correct or you can be wealthy; I know which one works for me.
The facts are the stock market has staged one of the greatest comebacks in financial history, gaining 190% between 2009 and 2014. If you invested in the stock market in 2009, a time when the rest of the financial world had soured on U.S. equities, you’re not only wealthy today, you’re fabulously wealthy. So far this year has been a bit more choppy but there are some good reasons 2014 is going to be another great year in the market.
Globally Better Than 2013
Globally many countries have seen faster GDP growth than in 2013. What people tend to forget when looking at market valuations is that the economy is a living thing. Numbers that are overvalued today can look better in six months because the economy is not stagnant.
Most States Will Meet or Beat Growth Expectations
Kiplinger forecast a 2.6% national growth rate for 2014. The laggards are Maine, New Hampshire, Mississippi, Alaska, Hawaii and Nevada, the other states will experience either average growth or significantly above average with the greater number falling above the line.
The “Disney Effect”
Starting salaries for college grads are up, unemployment is down and wages are starting to climb. When Americans feel good about their personal finances, they go on vacation. Revenues at Disney are up 8% and Disney World here in Florida has seen a record numbers of visitors even though tickets are $96 for anyone over 10. Visits to Vegas are up but Nevada still lags the rest of the country in the recovery and gambling revenues are lower.
The Big Correction Was Barely a Speed Bump
I called for a correction near 20% and the actual number was closer to 4.5%, which made me seriously pessimistic. While it’s still too early to be taking a victory lap, the market has recovered from 16,400 to 16,651 in a matter of days. I’m staying in the market at least until the end of the year and probably longer, although I’ve shifted my investments from growth to income with an emphasis on companies that can keep earnings up even in a choppy economy.
Where It Could All Go Wrong
Unlike 2012 and 2013, there are some troubling clouds on the horizon today. The instability in Iraq has the potential to shock world oil prices which would ripple through the rest of the economy like a fire on an oil derrick. While the market may be doing well, only 54% of Americans invest in the stock market. That means half the country can’t figure out why I’m so positive about the last five years and, from that perspective, I probably do seem delusional. My fellow writer here at Red Tea, Louis J. Wasser, has some good insights in how current global conflict could turn into a market rout.
Along with the growth in wages comes a growth in inflation. The Federal Reserve is already making noise about raising interest rates and they’re not bluffing this time. Higher wages and higher interest rates will deflate corporate profits and let some steam out of the market, though probably not this year. Either way the hand is writing on the wall and the message is that the equity party is almost over.