Next year could be the exact opposite of 2008, with negative shocks replaced by positive economic surprises. Developed economies, led by the United States, could reach “escape velocity” and recent data is consistent with global growth reaching around 3.5 per cent next year (compared to 2.7 per cent this year). The growth is being led by the consumer and, if it continues, it may just spark an increase in investment spend by cash-rich companies, which has been missing from the recovery to date. Equities will remain underpinned by the ongoing rotation of investors from fixed income. But where stock market gains in 2013 were largely driven by the expansion of price-to-earnings multiples, improving economic fundamentals mean that further gains may now come through stronger top-line growth. This will hopefully lead to better earnings performance, which will be the key return driver of 2014. Nancy Curtin is chief investment officer at Close Brothers Asset Management.
Global stocks have rallied some 17 per cent since late June, which has seen valuations far exceed their long-term averages. The Dow Jones’s 16,000 level has been punctured, likewise the 1,800 mark on the S&P 500, and inflows into European equities are surging. When we get to this stage in a rally, the feeling is that the time may be ripe for a correction. Indeed, a number of event risks in the coming months and next year could very well trigger such a pullback. Any strength in US non-farm payrolls will continue to raise the prospect of a Federal Reserve taper, which could easily see markets adopting further caution. With low volumes expected in the run up to Christmas, the move to the downside could be an exaggerated one. Looking further ahead, investors are aware that the long-term fiscal policy of the US remains unclear, and the impact of further negotiations on growth and investor confidence is yet to be seen. Brenda Kelly is senior market analyst at IG.