The Week In Hindsight; 02 Jan 2013

The closing days of the year saw markets resilient in thin trade while the opening to January offered encouraging signs for the M&A market throughout 2014. Friday saw Fiat make a substantial bid for the remaining stake in Chrysler Corp while the telecoms sector promised another year of intense competition in the US.

This was as AT&T, one of the largest telecoms providers in the US, made a $250 complimentary credit offer to all T-Mobile customers in a bid for revenge against an earlier attack of a similar nature by the company.

With most equity markets having enjoyed record gains throughout 2013 the time has come for much star gazing and soul searching as part of attempts to determine what the year has in store for the investor community. In contrast to this time last year, sentiment is broadly positive with most commentators looking for another year of gains across indices.

Although we wouldn’t disagree with the general consensus for the year overall, there are near term risks that investors could serve themselves well by being watchful for.

With the Federal Reserve due to commence tapering operations this month and results season almost upon us; we feel it is likely that some stocks are not far from their day of reckoning. As stimulus begins to be withdrawn from the market and investor appetite for inflationary hedges begins to diminish; it is likely that companies will be forced to justify their current valuations when reporting this year.

Should the overriding feeling be one of disappointment or indifference upon results day, there is a likelihood that markets could see a correction become the dominant theme of Q1. Despite this possibility, the overall economic outlook remains healthy and any correction that may or may not occur is viewed as providing a welcome teeing off position for the remainder of the year.

US GROWTH LIKELY TO IMPROVE IN 2014

US consumer confidence also improved throughout December, along with house prices and manufacturing activity. The world’s largest economy is widely expected to break the 3% level for overall GDP growth this year.

In addition to improved sentiment from both consumers as well as investors, the US economy is likely to benefit from receding political risks as both governmental parties are seen to be edging toward a durable resolution to fiscal disagreements.

With Washington functioning properly, inflation relatively low and the overall global growth outlook much improved from the previous years; 2014 could be a good year for US companies.

DOW JONES 2013