Early Thoughts On Investing In 2014

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December 19, 2013 10:13 AM EST

By Mitchell Clark, B.Comm

It's less than two weeks prior to the Christmas break, and with the New Year on the horizon, that means it's time to sit down and really re-evaluate your portfolio.

Now, we could see Santa appear and deliver our Christmas goods (i.e. additional gains) into January. What a wonderful way that would be to begin the year? But I will discuss what's to come in 2014 in my year-ahead outlook in three weeks' time. At this point, I'm not positive, but I think it's going to take some work to make money in the New Year (Santa's not likely to drop that off under your tree).

The days of the Federal Reserve's flow of easy money into the stock market, which we witnessed over the last four years, will be steadily fading away unless, of course, the new Federal Reserve Chair, Janet Yellen, decides to extend the bond buying longer than necessary. She does love the use of loose monetary policy to prime the economic engine, just as the exiting Federal Reserve Chair Ben Bernanke did for years.

Naturally, a lot of what the Federal Reserve does will circle around what's happening in the economy.

The Federal Reserve wants jobs so consumers can go out and spend money, driving up the economic renewal. After all, consumer spending accounts for a whopping 70% of the country's gross domestic product (GDP) growth. Now, imagine what it's going to look like when Chinese consumers spend, which is exactly what the government is hoping for in that country. (Read "OECD Predicts China #1 Economy by 2016; Consumer Spending to Soar.")

On this side of the Pacific Ocean, the key retail sales increased 0.7% in November, which was above the consensus 0.6% estimate and the upwardly revised 0.6% reading in October. This retail data is the last major economic reading until the Federal Open Market Committee (FOMC) meeting this Wednesday. While beating the consensus, the reading may not be strong enough to convince the Federal Reserve to begin its tapering just yet.

Stripping out the auto sales, retail sales jumped 0.4%, above the consensus 0.3%, but below the upwardly revised 0.5% in October.

My sense is that the Federal Reserve will likely hold off on tapering until sometime in the first quarter of 2014.

The Federal Reserve is also unpleased with the weekly initial claims that surprisingly jumped to 368,000, worse than the consensus 315,000 and the 298,000 reading in the previous week. With this weak showing, the Federal Reserve will likely hold off on tapering as the fear of fragility on the jobs market could hamper consumer spending and GDP.

Given this, we could likely see a Santa Claus rally and gains as we move into 2014. While the continuance of easy money in the near-term will help, it will soon be time to be more selective in your stock picking, as the easy profits to be made in stocks are likely gone.

My early thoughts are that technology will continue to be the driver in 2014, but look for non-cyclical stocks, such as the utilities and companies like Colgate-Palmolive Company (NYSE/CL), to continue to deliver should the economy stall.

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