Will 2014 Bring Calmer Economic Waters For Markets?

By: Chris Ciovacco | Mon, Jan 13, 2014
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Eventually, The Economy Needs To Step Up

The Federal Reserve has been doing the heavy lifting in the stock market for longer than they care to admit. In order to declare their quantitative easing program a success, the Fed needs the economy to pick up, allowing the central bank to taper their way into a less meaningful role.


Detroit On More Solid Footing

The Detroit Auto Show provided some insight into the health of the 2014 economy relative to the dark days of the financial crisis. From The Wall Street Journal:

Detroit's weather promises to be chilly and dank as ever. But the U.S. auto industry is enjoying blue skies. Sales in 2013 recovered nearly all the ground lost during the Great Recession in 2009, as demand for luxury cars and highly profitable trucks and sport-utility vehicles boomed and gasoline prices drifted down. The pace of growth in 2014 will slow, but most industry executives expect smooth sailing for the near term compared with the turmoil of recent years.


Fundamental and Technical Alignment

Is everything perfect in the world? No, far from it, but just as the auto industry is on firmer footing these days, the same can be said for systemic issues, the global economy, and the market's technical profile. This week's stock market video examines numerous risk-on vs. risk-off ratios that continue to point to bullish economic and stock market outcomes over the coming months.


Will Harmony Bring Better Results?

Cartoon: Singing from the same 2014 economic hymnal?

Forecasting is difficult. Since 2009, economists around the globe have predicted "better days ahead" only to be rebuffed by tepid economic data. The odds say the 2014 forecasts may land closer to the actual mark. From The Economist:

The central bank's crystal-ball-gazers expect growth to reach 3% this year; private-sector seers say 2.8%. Recent experience calls for skepticism. Almost every year since 2008 both the Fed and private economists have predicted an uptick, only to be disappointed. This year, however, they disagree less about the prospects for unemployment and inflation. Such harmony usually foreshadows greater accuracy, according to Goldman Sachs, a bank.


Investment Implications - Stocks Still Favored Over Bonds

The monthly labor report cast some doubt on the "2014 will be different" theory, but as we noted last Friday, the market's pricing mechanism was still favoring stocks over bonds. If you are wondering if the answer has changed in the wake of Monday's equity weakness, the answer is "not yet". Our market model will begin to check more risk-off-related boxes if the chart below morphs into a look similar to points A and B.

AGG:$SPX Chart

Is it possible stocks are on the verge of a correction? Sure it is, but until the evidence confirms a relevant shift in the market's risk appetite, we will continue to hold positions in U.S. stocks (VTI), financials (XLF), energy (XLE), technology (QQQ), small caps (IWM), Europe (FEZ), and global stocks (VT).

 


 

Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

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Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
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