Dividends4Life: Can 2014's Stock Market Stack Up to 2013?

Can 2014's Stock Market Stack Up to 2013?

Posted by D4L | Friday, January 17, 2014 | | 0 comments »

The Dow Jones Industrial Average (DJINDICES: ^DJI) returned 26.6% last year and the S&P 500 was up 29.1%. Those are incredible returns no matter the year, but can the stock market do it again in 2014? There are reasons to be concerned and reasons to be bullish going into next year. First, let's cover a few reasons 2014 will be different than 2013. One of the reasons stocks moved higher in 2013 was that bonds were so unattractive. But now that the Federal Reserve is slowly pulling money from QE3, an $85 billion-per-month bond buying program, bond yields are rising and bonds will attract more money in 2014.

Then there's the fact that stocks are a lot more expensive than they were a year ago. The Dow Jones Industrial Average has a P/E ratio of 17.0 today and was just 14.9 a year ago. Multiple expansion drove the market, and P/E ratios could certainly go higher, but unless earnings rise significantly this year I don't see companies justifying higher valuations. Last year was a strange one for stocks in that the market was driven by few attractive alternatives and by optimism for the future, not by fundamental strength from the companies investors were buying. I don't expect the same drivers to exist this year, but that's not a reason to sell now.

Source: Motley Fool

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