Credit Markets Signal Stock Market Party To Continue In 2014

Yield Curve Signaling Movement into Riskier Assets Another indication of the market rotation to riskier assets can be seen in the Treasury yield curve from December 2nd through the 19th. (Click to enlarge) In the graph above, the gradual rise in yield of the 5 YR Treasury relative to the longer dated maturities both pre and post the FOMC taper announcement is important information. It reflects the beginning of a flattening of the yield curve which typically marks an expansionary economic phase. Since the Fed is pegging interest rates, the short end of the curve is distorted. However, longer dated maturities have begun to reflect real economic activity. Selling of mid-term Treasuries and demand showing up in alternative, riskier assets is a positive market signal. Eventually the cost of 5 year money will reach a point where it competes with investment alternatives on a risk reward basis; however, presently the trend is moving in the opposite direction. This is a bullish stock signal. Currently, credit market signals show the stock market can continue to rise in 2014 with low risk of a major correction.

Two Key Steps to Stock Market Success in 2014

Even if you are a more conservative investor buying DOW and S&P 500 stocks, your wallet still got bigger. What has surprised me this year has not been the advance as much as the ability of the stock market to avoid a sizable stock market correction . The S&P 500 retrenched about 6.5% in May and June after the Federal Reserve first uttered the word taper. Yet the downcast mood didnt last that long, as traders quickly entered the market and bought on the weakness. This has largely been the pattern this year, where any sign of weakness was followed by buying. Chart courtesy of Now Im not a pessimist, but I do believe in market adjustments along the way. At the beginning of the year, I predicted the stock market would move higher, but not at the rate and size we saw. Maybe a 15% upside, but definitely not 30% plus.

The 10 Best Performing Stock Markets Of 2013 Includes Some Really Surprising Countries

The Caracas Stock Exchange, which lists just 15 Venezuelan shares, has returned a whopping 452pc in 2013, according to data firm Morningstar. But British investors have missed out on these stellar returns, as none of the 1,500-odd funds available to UK investors has a single penny in shares listed on the exchange. The strong stock market returns have come despite the anti-capitalist policies of the former president, Hugo Chavez, who died in March. Mr Chavez was not a fan of the private sector and during his 14-year reign regularly seized company assets. In turn this discouraged foreign investors from putting their money into companies in the South American region. But investors should be cautious about history repeating itself in 2014. The main reason for the Venezuelan stock market's strong performance has been the fear that the country is on the verge of a currency crisis, rather than investors warming to its new president, Nicolas Maduro. "Domestic investors are seeking to protect their bolivars from devaluation and inflation by buying the few stocks available on the local exchange pushing up prices," said Barclays Wealth.