Before I get into our views from a fundamental perspective, I thought I’d pass on the thoughts of our favorite technical analyst. He put out a commentary today titled “Predictions.” It was short and to the point, and he noted that consensus opinion is for the markets to return a positive 10% for 2014. He believes the markets will be flat, but volatile, with the potential for swings in both directions of around that same 10%. That is a 20% range and if he’s correct, will present opportunities for investors. His view is that last year was the year of anticipating positive changes in the economy and this year will be the year that absorbs and consolidates gains, thus the volatility.
From our fundamental, top-down perspective, the economy continues to get stronger, albeit slowly, and we believe that the economy will continue to pick up pace. One of the reasons behind our thinking is that household balance sheets have improved markedly over the last year. Consumers have continued to reduce their debt, and with the markets’ stellar performance last year, assets on their balance sheets have risen. This bodes well for consumer spending in 2014. Furthermore, according to the Federal Reserve, the third quarter of 2013 marked the first time in 18 consecutive quarters that mortgage debt rose. While housing data continues to be up and down, we consider that metric important, and it may be looked back on as the turning point for the housing markets.
Next week no interesting data shows up until Friday, when we get the Jobless Claims and Existing Home Sales reports.