Where Stocks Will Go as We Head Further into 2014

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

Remember last month when the chatter on Wall Street was dominated by the perma-bulls telling everyone what a great year 2014 was going to be? I certainly remember this talk, but so far in 2014 the bulls have been anything but present. Last week, stocks in the S&P 500 Index suffering their worst weekly performance since June 2012, sinking nearly 2.7%. That selling has ramped up in Wednesday trade. As of midday, the S&P 500 is trading below the 1,775 mark.

My reading of the chart below tells me that if we fail to get some bullish traction here at this level, then the next step could be a correction all the way down to 1,704, which is the 200-day moving average. If that situation happens, there will be a lot of investors running scared, and that could lead to an even bigger, more massive bout of selling.


Now, I am not saying this scenario definitely is going to occur with stocks. What I am saying is that I think the breaking down of support at current levels is the beginning of a much-needed correction, and that it’s something to keep a very close watch on here if you are invested in stocks.

If you aren’t currently invested, then now is not the time to make your move. You’ll definitely want to play the waiting game a bit longer to see if a full-blown correction takes place. If it does, that is when you’ll want to start putting on your bargain-buying hat and think about doing some shopping.

While the correction might be just underway here in the United States, it already is occurring in emerging markets. The chart below of the iShares MSCI Emerging Markets (EEM) shows the huge drop in the space so far this year. EEM currently trades well below both the 50- and 200-day moving averages, and that’s definitely a bearish sign going forward.

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Could the same thing happen to U.S. markets? It certainly can, especially if global growth fails to reignite the way so many pundits have predicted it would. Moreover, if earnings here at home continue to be mediocre, and if forecasts and earnings expectations continue to be sluggish, then the market won’t have the fundamental support that it needs to advance.

The market definitely is undergoing an adjustment. As such, you’ll want to approach your investing decisions with extreme caution.

The Fed Tapers Again

The Fed did what most of us expected it would, and that was to continue to taper its bond-buying program. The Federal Open Market Committee (FOMC) decided to pare down its current $75-billion-per-month bond buying program to $65 billion per month, with the taper split evenly between Treasuries and mortgage-backed securities.

While the Fed’s decision in this final Ben Bernanke-chaired meeting was very well telegraphed, the market didn’t seem to take much comfort in the announcement. Stocks were down about 1% going into the meeting, and a half hour later they remained down about 1%.

Interestingly, the vote to continue the Fed’s taper was unanimous, with all the FOMC members agreeing on the decision to peel another $10 billion per month from its bond purchases.

The next FOMC won’t come until March, so the Fed will be a relative non-factor for at least another two months or so. Until then, we can ease back on the Fed watching and concentrate on what’s really moving markets right now, namely concerns about global economic growth and corporate earnings.

Get Fiscally Fit in 2014, Part IV

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For the past several weeks, we’ve outlined the steps toward becoming fiscally fit for 2014. This week, we have Part IV of our series, which is all about getting a grasp of your expenses.

When it comes to expenses, many of us act like an ostrich and put our heads in the sand. That’s because tallying up your expenses can be a both disconcerting, and quite revealing. I recall that just a few short years ago, many of my friends, acquaintances and colleagues were on spending binges like you couldn’t believe.

I saw many upper-middle class people behaving like they were Arab sheiks, throwing money around lavishly (and in my view, frivolously) on cars, boats, vacations, home improvements and other goodies. A few years ago, expenses didn’t really matter, because the economy was booming and home values and stock portfolios were sky high.

As we all know, times have changed. And even though the economy and the markets have made headway during the past couple of years, the lesson most of us learned is not to overextend ourselves, and to keep expenses down.

The first step in getting a handle on expenses is to do a simple list of what you owe, to whom, and at what interest rates you’re paying. Doing so allows you to identify where you can make adjustments, and making the right adjustments can help you increase your wealth.

For example, if you have toys like a boat, a sports car or a motorcycle that you aren’t using very much, why not consider selling them and shedding those payments? Also, if your home mortgage is well above the current rate of interest, then you need to consider refinancing while interest rates remain low. I know it’s almost impossible to refinance if you’re underwater in your home. But if you do qualify, you can save thousands and thousands of dollars over the life of the loan by getting that rate lowered.

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If you have high-interest credit cards, then consider putting a plan in place to pay that debt down to manageable levels. There’s nothing worse than constantly paying each month on purchases with high interest, because you end up increasing the overall cost of those purchases. The longer it takes to pay them off, the more money you’re losing.

When it comes to protecting your net worth, think about how you can keep more of what you make by reducing expenses. This move alone will really help you get fiscally fit in 2014.

Seegerish Wisdom

“Songs won’t save the planet, but neither will books or speeches.”

–Pete Seeger

The folk singer/songwriter and activist passed away this week, but I suspect the simplicity and messaging in his songs will live on for centuries. And though I wouldn’t consider myself aligned politically with Seeger, I do agree that if you want to evoke change, you have to do more than just give that change lip service. So, whatever your cause, I say take action and try to make the world a better place.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Making Money Alert readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

Read my e-letter from last week about why consensus on Wall Street is a dangerous thing. I also invite you to comment about my column in the space provided below.

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