As we move through the midpoint of the first quarter of 2014, we have experienced some market turbulence as a result of the sustained run up in equity prices and potential risks rising closer to the surface. We expect that this increase in market volatility is not something that will be short-lived and expect it to continue through the end of 2014. As long as economic data in U.S. and global markets remains on the upswing and central banks continue their accommodative policy, we will be looking to use this volatility to our advantage.
The positive momentum of the past several years has been driven largely by the unprecedented amounts of economic stimulus injected by the central bank. We believe that in order to continue to push forward and justify the recent expansion in equity valuations, earnings need to continue to post consistent, healthy gains going forward. Economic conditions at home and abroad will need to remain positive in the coming quarters to meet these expectations.
News continues to improve in Europe as the major economies of the Eurozone all posted positive numbers for the last three months of 2013. This is a major improvement and bodes well for the continuation of the U.S led global recovery. The most unpredictable variable in the global economic equation continues to be China. If we continue to see weakness as we did this afternoon in China’s manufacturing numbers, the fight for positive momentum may be far from over.
The Fed’s changing of the guard went off without issue, and markets were tempered by the statements made by the new Fed chairwoman Janet Yellen which as expected, echoed those of her predecessor. Although the process of withdrawing the stimulus is underway, it is evident that the policy will continue to provide a tailwind for growth through 2014.
While we expect to encounter a fair amount of volatility and uncertainty throughout the coming year, the climate for global growth in equities should remain positive. We task ourselves with identifying value in the market, taking advantage of price weakness when available, and focusing on earnings and growth in our security selection as we continue to seek consistent risk-adjusted returns.
Stocks offer long-term growth potential, but may fluctuate more and provide less current income than other investments. An investment in the stock market should be made with an understanding of the risks associated with common stocks, including market fluctuations. Past performance does not guarantee future results.
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