Are Stocks in for Tough Sledding?
Investing
Guide at Deep Blue Group Publications LLC - After
posting scorching returns in 2013, stocks' flat performance in this year's
first quarter seems anticlimactic. Many investors were no doubt expecting the
good times to keep on rolling, while valuation-conscious types might have
expected an even bigger performance drop-off.
With
the first quarter receding in the rearview mirror, we decided to get
Morningstar readers' takes on the action. What has been the biggest surprise
thus far in 2014, and (cue the crystal balls) what do they expect will happen
during the rest of the year?
Some
investors said the first-quarter uptick in stock market volatility was indeed jarring.
Others said they were surprised to see decent performance from their bond
holdings so far in 2014, given the widespread pessimism that has hung over the
fixed-income market for several years running.
Looking
forward, many posters said they don't have high hopes for stocks for the rest
of the year; a frequent refrain was that a still-sluggish U.S. economy will
make it difficult to justify higher stock prices when they're already on the
lofty side.
To
read the complete thread or share your biggest investment surprise so far in
2014's early days--or your expectation of what lies ahead--click here.
'Bonds
Have Behaved Better Than I Expected'
Stocks'
herky-jerky pattern--up big one day, down big the next--has come as an
unwelcome development for homebrewer in 2014's early innings. "My biggest surprise is how volatile
the market has been; I expected some but not this much. I think fear is driving
this market more than reason. The fear of being in the market when bad news
hits causes selling and the fear of not being in the market when it goes up is
causes buying."
Dawgie,
meanwhile, has been surprised by the continued poor performance of emerging-markets
stocks and bonds and the continued relatively poor performance of foreign
stocks in general compared with domestic [stocks].
Meanwhile,
several posters said they expected fixed income to be their portfolios' major
pocket of weakness in 2014, but bonds have actually done quite well.
"I was surprised by interest
rates, not because they fell, but how far down they went," said Darwinian.
BMWLover
observed, "I'm surprised that the
weather has sapped as much out of the economy as it has, especially since the
west was actually warmer and dryer than average. The result was that bonds have
behaved better than I expected. I was expecting to see the 10-year Treasury
bond [yielding more than] 3% at this point in time." (The 10-year
Treasury is currently yielding about 2.75 %.)
Ditto
for artsdoc, who wrote, "I'm a bit
surprised that my fixed-income side of my portfolio has returned more than my
equity side."
But
even as some posters were bracing themselves for poor fixed-income performance
and better returns from their equity portfolios, other respondents said stocks'
meh performance didn't surprise them at all. "The biggest first-quarter
surprise for me is that the correction didn't arrive yet, and some nice gains
have been made," wrote sportsden.
On
the same page is atomiccab: "I am
surprised that I am even with my end-of-year numbers. I expected the markets to
go down after such a large runup last year."
Several
posters pointed to REITs as being a pocket of unexpected strength thus far in
2014.
Dawgie
was one of the respondents who had been expecting to see REITs revert to the
mean. "Although they were off in
2013," this poster wrote, "their
five-year returns are still very high."
Rathgar
hoped to add to the asset class as valuations improved, but that hasn't panned
out. "I bought REITs (Vanguard REIT
Index ETF (VNQ)) low in December and planned to add monthly, expecting lower
prices. With REITs up 10% I might have to add to another asset class."
Audreyh1
thinks she can explain REITs' late 2013 downturn--and subsequent bounceback. "Things that come under a lot of
selling pressure late in the year--such as REITs and municipal bonds in
2013--seem to pop early the next year because the tax-loss selling is
over," she said.
'Going
Forward Will Be a Bit of a Slog'
Looking
forward, many investors who posted predictions said they're not expecting a lot
from either the stock or bond market for the rest of the year.
"I suspect that going forward
will be a bit of a slog,"
wrote artsdoc. "Valuations are a lot
higher than last year at this time, and I'm not expecting much more than
treading water from my fixed-income investments."
On
the same page, FidlStix quipped, "This bull's running low on testosterone.
Having said that, I don't think the trap door is going to drop out from under
the market in 2014--unless we have a world crisis that makes Ukraine look like
a romp through the playground. We'll end the year about where we started. It'll
be a bouncy year, though. Investors with strong stomachs who can ignore the
greater volatility will do OK. Those who can't are likely to sell at the wrong
time and shrink their nest eggs."
Bnorthrop
believes that the rest of the year will feature a continued push-pull between
stocks and bonds. "I expect 2014 to
remain in a relatively flat dynamic tension between stocks and bonds. Continued
suppression of interest rates lead to risk-on investments; Fed
rumblings/expectations of rate increases lead to risk-off maneuvers. Slow-cook
economic improvement gives the nod to equities."
Jomil
agreed that the markets will muddle along, nothing more. "I expect more of the same because we are in a trader-controlled
market with their ability to create and use volatility to an advantage in
finding fleeting pockets of value to buy and sell in milliseconds before the trend
changes. To beat them at this game, one has to buy and hold at lower cost, be
lucky, or have their resources."
Homebrewer
offered a host of macroeconomic and market predictions, including this: "If the total U.S. market ends at or
above zero, I will be surprised."
'There
Will Be No Buyers Left'
Yet
other investors said they're even more pessimistic about stocks' prospects.
Sportsden
foresees a correction later in the year. "I
expect a strong correction by October, since the market seems to be ahead of
itself--but, of course, nobody really knows."
Also
expecting a big stock drop--not imminently but eventually--is Darwinian. "I anticipate more drops, probably of
increasing depth, followed by partial or full recoveries. The market is
overpriced, but it can't plummet yet, because there is still too much money on
the sidelines. Once this has been sucked in, through 'buy-on-the-dips'
strategies, then the big dive can begin, because there will be no buyers
left."
Homebrewer
advised that investors coming late to the party (and asset-flows data indicate
there are many of them) could get burned. "People
entering the bull late will drive P/E ratios up and get burned when the bear
takes hold."
Meanwhile,
BMWLover anticipates that a correction could be right around the corner. "Stocks, I keep waiting for them to
correct," this investor wrote. "I
think we'll see that in the second quarter with the first quarter's earnings
reports giving sellers a reason to pull back and buyers pause."
So
what will perform decently? Rathgar thinks that unloved inflation hedges may do
all right. "I think inflation hedges will have a good year since most
investors aren't thinking about inflation and these investments were cheap
coming into 2014--REITs, commodities, Treasury Inflation-Protected Securities,
and global bonds.
'No
Idea'
Finally,
it wouldn't be a "make your
predictions" thread without at least a few investors commenting on the
folly of trying to predict the market's direction.
Dawgie
wrote, "What do I expect for the
remainder of the year? No idea. I don't put much credence in market forecasts,
and I certainly lack the insight to make any."
And
Chief K joked, "My expectation for
the market: About half of the people who buy shares of stock in a particular
company will get 'the better end of the deal.' About half of the people who
sell shares of stock in a particular company will get
'the better end of the deal.' I won't know which is
which until after it's all over."
This
investor's takeaway? "Index, repeat
Index."
Asset-allocation
parameters, not market prognostications, guide the way for Audreyh1.
"Fortunately my investment strategy doesn't require me to guess which
asset class will outperform. Whatever happens, I'll rebalance next January if
my AA is sufficiently out of whack by then. What really surprises me is that
the first quarter is almost over! Time flies!"
0 comments :