It seems that many in the market are looking at the current rally with skepticism. That makes sense, given the abuse investors have received over the last decade. The boom-and-bust cycles of the past suggest we are due for the bust part of the equation sooner than later.
But I am not buying that argument. Instead, I’m formulating a different view for the coming year – a view that has economic growth stronger than many currently expect.
That growth will be the tonic to calm investor worries over current valuations. Earnings in such a strong growth environment will be stronger than expected.
Even if price-to-earnings multiples stay the same, stronger-than-expected earnings have the potential to lift stocks by 10% or more in the coming year.
As always within that construct, individual stock selection can trump the macro environment. Some names will do better than others.
Will those stocks include the names that performed so well in 2013?