The stock market has enjoyed a spectacular run—with the Dow shattering the 16,000 barrier—but temporary headwinds are likely to drive a sharp, short-term correction by the end of the first quarter.
The longer-term prognosis for the market is very positive, with key economic signs aligning for a sustained bull run. But in the extreme short-term, investors who are on margin should cover their positions so they will be able to make a quick jump as soon as the tide turns.
I see a healthy 15-percent correction in the spring, as issues like domestic political scares or Middle East unrest spook the market. There’s a need to anticipate it and to plan for it, but this short-term correction will lead to market cleansing, setting the stage for more upturns. This will not be the beginning of the end.
The underlying fundamentals are still strong, and I anticipate ‘Goldilocks growth’ and returns of 12 percent for all of 2014. The market will be not-too-hot, and not-too-cold, but instead the growth will be just right.
I think one of the key contributors to performance will be the purchasing power of international consumers.
Some market observers fear that domestic consumers are ‘tapped out,’ but they forget about international consumers who want to own U.S. products. There’s consumer hunger in just about every country, and U.S. companies are meeting that demand by manufacturing and exporting more goods and services, which translates into a broad-based boost to revenue.
If we were to analyze the market by segment, I think investors should underweight the bond market, which will likely suffer as the Federal Reserve’s tapering actions fuel an increase in interest rates. Yields are terribly low right now, and a rise in rates will drive down bond prices. Right now there’s no upside to exposure to the bond market.
I am, however, bullish on certain technology and other segments in the market right now.
We’ve just scratched the surface when it comes to the Internet. We’re looking at ubiquitous connectivity, and I’m looking into companies that are developing “smart” appliances and that are investing in research and development efforts. But with that in mind, I’m not a big fan of social media, because I believe the market is overbidding it right now.
As for the housing market, I do see a comeback this year. That should also have a positive impact on construction. That also translate to a better long-term outlook for banks.
Lastly, I believe companies that are tied in to infrastructure activity should offer good returns, and automotive suppliers will do well, since consumers have owned their cars longer.”
Jordan Kimmel recently joined KCD Financial, Inc. Member FINRA/SIPC., a fully introducing broker/dealer and State Registered Investment Advisor firm that is majority-owned by Freedom Securities, Inc. In his role as chief market strategist, he provides guidance to the firm’s nationwide network of independent brokers and their clients on relative risk and opportunities in the capital markets. Prior to joining KCD Financial, Kimmel served as chief market strategist and portfolio manager for other national independent brokerage firms. From 1997 to 2009, he was president of the Magnet Investment Group, LLC, an independent firm that managed proprietary funds and served as a sub-advisor to other prominent investment firms. He authored Magnet Investing and The Magnet Method of Investing: Find, Trade, and Profit from Exceptional Stocks, (Wiley, 2009). In 2013, the well-known Stock Trader’s Almanac dedicated its 46th annual edition to Kimmel.