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3 themes that will dominate trading in 2014


From long-term weather forecast to pickling ideas to the best days to plant your seeds, the Old Farmer’s Almanac has been dishing out home-style advice to its readers for more than 200 years. In a similar vein, Jeff Kleintop, chief market strategist at LPL Financial, has published the 2104 Investor’s Almanac in hopes of shedding light on the financial year to come. While far removed from the field and farm, Kleintop has singled out three key themes that he thinks will shape the tone and tenor of the financial markets.

1) A Simpler Time

If 2013 will be remembered for anything, the omnipresence of government - in all of its forms - would be a top pick for theme of the year. 

“2013 seems like it was all about policy makers, whether it was the Fed or Congress or even those overseas,” Kleintop says in the attached video. “I think in 2014 we’ll be able to ignore a lot of that and get back to the basics of growing and preserving portfolios.”

Related: Here’s Why History Favors Another Good Year for Stocks in 2014

His back to basics prediction of “portfolios over policy” comes despite the fact that next year will see a brand new leader at the central bank as well as a politically charged run-up to the mid-term elections in November. 

“I think the market is prepared for all that,” Kleintop argues, adding that “we learned a good lesson in 2013 that a lot of things we worried about, didn’t worry the market that much.”

2)  A More Fertile Economic Backdrop

We got our first hints last week at the better than expected economic trends that are starting to sprout when third quarter GDP was revised to 4.1%, the fast growth in two years.

“We’re starting to see these green shoots come up,” Kleintop says, noting the increased occurrences of better growth reports at home and abroad.  

While he says the growth rate numbers, on their own, are still only average, they’ll have a big impact on previously flattish revenues. It’s a scenario he says will also boost corporate profits and earnings and ultimately stocks.

3) More Storms

The endless uptrend of 2013, where stocks never gave investors much of a chance to buy dips, is not likely to be repeated next year Kleintop says. His almanac is not so much forecasting an increase in snow or rain or drought, as much as it is predicting an uptick in the overall turbulence within the markets.

“A lot of folks will be just coming back into stocks for the first time in five years,” he says, noting that they “may be unused to all the amount of volatility that they’re going to get.”

He says that in a ‘’normal year” for stocks we shoud expect at least four pullback of 5% or more, as well as at least one correction of 15%. 

“We’re likely to see something much closer to that in 2014, so get  ready for that kind of volatility.”

That is something that has clearly been absent in the up, up, up year gone by, in which the Dow Industrials set no less than four dozen fresh new all time highs.

“That means you can buy the dips and take advantage of the volatility, but it means you have to brace yourself.”

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