Tags: S&P 500 | stocks | gold | tech

Staying Accountable in 2014

Patrick Watson By Wednesday, 09 July 2014 08:23 AM EDT Current | Bio | Archive

Back in January, I gave you my predictions for 2014. Now we're halfway through the year and it's time for a gut-check.

My Jan. 8 column, titled Surprises for 2014: Tech Melts, Cash Stays Trash, had seven specific forecasts. How did they turn out?

1. Stocks Melt Up. I said the stock market would have a good year, but not a great one. We have a mixed verdict so far. In the first half of 2014, the S&P 500 rose 7.1 percent and the Nasdaq 100 gained 7.6 percent. Small-cap stocks lagged behind, with the Russell 2000 up only 2.9 percent through June 30.

The curious exception is the Dow Jones Industrial Average, whose blue chips managed only a 2.7 percent total return in the first half. The Dow's antiquated "price-weighting" methodology worked against it. Boeing (BA), Visa (V) and Goldman Sachs (GS) accounted for much of the Dow's performance gap. Their high share prices overwhelmed excellent percentage gains in Caterpillar (CAT), Intel (INTC) and Merck (MRK).

2. Cash Will Stay Trash. The Federal Reserve under new Chair Janet Yellen is on course to end the quantitative easing program later this year. The members say that higher short-term rates won't come until mid-2015 at best. Don't expect to make money in CDs any time soon.

3. Technology Will Correct. The technology sector corrected in the first half, though the sector is now so broad we have to look at subsectors to see why. Large-cap names like Intel and Apple (AAPL) helped the S&P 500 Technology Index hold its drawdown to only 7.6 percent at the mid-April trough.

The unsustainable social media valuations I mentioned in January were indeed unsustainable. Global X Social Media Index ETF (SOCL) plunged 28.3 percent between March 6 and May 7. It has since recovered about half that loss. With the weak hands now out of Facebook (FB), Twitter (TWTR) and Linked In (LNKD), we might see more rational trading in the second half.

I also think the impending round of second-quarter earnings reports will again show that U.S. cloud technology firms are losing sales overseas due to the National Security Agency spying revelations. This will be a drip, drip, drip pattern of steadily eroding revenue.

4. Something Big from Apple. We still don't know exactly what it will be, but software innovations revealed at Apple's developer conference last month suggest we will see new, larger-screen iPhone models and possibly a wearable device before year-end.

CEO Tim Cook also keeps mentioning the number of iTunes accounts linked to credit cards, so we might see Apple move deeper into mobile payment processing.

5. Gold Retreats. I got this one wrong. Gold actually beat the S&P 500 in the first half with a 9.5 percent gain. It was hardly a smooth ride, though. Bullion prices endured a scary 8 percent slide in the second half of March.

6. Crude Oil Crumbles. I was off on this one, but might yet be right. I said the geopolitical risk premium would decline unless the Obama administration made the mistake of re-entering the Middle East maelstrom. Obama is right now making that mistake. We'll see how well it ends.

7. Currency Wars. I predicted competitive currency devaluations, and we are definitely seeing early signs of them. The European Central Bank effectively devalued the euro by dropping its deposit rate on bank reserves below zero. Abenomics is still unfolding in Japan and China is widening the yuan's trading band. Look for more such moves as countries seek easy ways to boost exports.

That's where we stand at the midyear point. I'll look again in six months. Stay tuned.

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Back in January, I gave you my predictions for 2014. Now we're halfway through the year and it's time for a gut-check.
S&P 500, stocks, gold, tech
Wednesday, 09 July 2014 08:23 AM
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