Five years from now, I believe we will look back and see that 2014 was part of the early stages of a multi-year secular bull market for US equities, characterized by rising stock prices with only short, intervening market corrections.
In fact, today’s market conditions may be parallel to the bull runs of the post-World War II era (1942 to 1966) and the post-Cold War era (1981 to 2000). During each of those time periods, the S&P 500 Index rose over 1,000% on a cumulative basis. While today’s bull market has been more moderate — up about 170% since the low in March 2009 — I believe that solid earnings growth, dividends and the expansion of price-earnings (P/E) multiples could add up to above-average long-term growth in equity prices.
As mentioned above, however, secular bull markets can be punctuated by short corrections. I believe that in 2014, given the recent surge in earnings growth, it is reasonable to assume such a consolidation may occur. In our view, that would represent a buying opportunity.
The potential impact of tapering
Another factor to consider in the US equity market this year is the impact of the tapering of the Federal Reserve’s (Fed’s) quantitative easing program, which we continue to monitor. I believe the Fed’s recent behavior demonstrates a commitment to avoid abrupt policy changes that could rattle the markets. The Fed’s actions also signal to me that the US economy has finally reached stable footing and can sustain its economic growth independent of global macro conditions. This should provide confidence for long-term equity investors.
Growth opportunities
As a growth investor, I look for companies that display a long-term commitment to innovation, which can drive revenue growth and market share shifts. Specifically, I see some growth opportunities in several pharmaceutical companies that are developing products to serve unmet needs, as well as in social media companies that stand to gain from mobile advertising, which we expect will take market share away from traditional advertising mediums such as print, television and radio.
Conclusion
As I’ve outlined above, I believe the market is on its way up. However, it won’t be a straight-line ascension. In the short term, we believe 2014 is vulnerable to a market correction that, from our perspective, would represent an attractive buying opportunity.
Important information
Price-earnings (P/E) multiple is a simple numeral usually used to express a price-earnings ratio.
In general, stock values fluctuate, sometimes widely, in response to activities specific to the company as well as general market, economic and political conditions.
Growth stocks tend to be more sensitive to changes in their earnings and can be more volatile.
Investments concentrated in a comparatively narrow segment of the economy may be more volatile than non-concentrated investments.
Past performance cannot guarantee comparable future results.
An investment cannot be made in an index.
The information provided is for educational purposes only and does not constitute a recommendation of the suitability of any investment strategy for a particular investor. Invesco does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state tax laws are complex and constantly changing. Investors should always consult their own legal or tax professional for information concerning their individual situation. The opinions expressed are those of the authors, are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
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