Today both the S&P 500 and DJIA sit at all-time highs; unemployment has most recently been measured at 7% and is clearly trending lower; the credit markets are still thawing, despite rates sneaking slowly higher; and seldom is heard a discouraging word from Europe or China. Add to that the price at the pump is at its lowest in three years.
There aren't too many left claiming the recovery isn't for real. There are a few who still think the dollar is on its way to obsolescence and are trading theirs for gold. My guess is there will be even fewer a year from now.
So what's the primary fear today? Is it that the Federal Reserve will somehow botch its exit from our bond markets? Maybe, although we got a positive preview last week when the Fed announced its decision to begin tapering. Not only did the stock market not fold at the prospect of moderately rising rates, it advanced convincingly. The 10-year Treasury is right at the 3% mark today and all is well.
Perhaps the fear is that the best of this bull market is behind us. If you haven't participated in the unprecedented four-year rally, it may feel risky or even foolish to jump in now.
So What Could Go Right in 2014?
- Unemployment should continue to trend lower, despite another debt ceiling debate next month and the implementation of Obamacare (which will likely undergo several revisions). More people working, combined with higher home and stock prices, means more consumer spending.
- Oil prices may move higher from here, but huge unforeseen benefits to our economy could emerge as the U.S. becomes a net exporter of both oil and natural gas. A primary beneficiary of the increased global demand for our resources should be the pipeline companies that transport these commodities. These include Kinder Morgan Energy Partners (KMP), Enterprise Products Partners (EPD) and Energy Transfer Partners (ETP).
- The demand by foreign governments, pension funds and mutual funds for the safety of Treasury bonds ought to keep a governor on how quickly our rates can really rise, despite the effects of tapering.
- Our nation's budget deficit in 2013 (about $680 billion) is at its lowest point since 2008 and appears to be shrinking with some regularity. This puts less pressure on Uncle Sam to raise taxes.
- The improvements we are seeing in foreign economies may actually provide upside surprises for U.S. industrials with large overseas exposure such as Caterpillar (CAT), Deere (DE) and General Electric (GE), which all look undervalued.
There is fear that 2013 didn't bring any meaningful corrections -- we must be "due" for one. Maybe that is the very fear that will keep some investors sidelined, again, in 2014. And as long as there are still investors on the sidelines, we likely haven't reached the end of this bull market.
Happy New Year! At the time of publication the author was long CAT, DE, ETP and KMP. Follow @ArgyleCapital This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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