Stocks have been on a tear lately and the trend should continue into today's session as well, though seasonally low volumes could exacerbate volatility.
The strong recent run should continue into the New Year as well. But whether the S&P 500 can produce another double-digit return in 2015 after three back-to-back years of such returns is hard to handicap. Many investors expect the good run to continue into 2015 as well, but a lot will depend on how the markets respond to the Fed policy change that is expected to start around the middle of the year. The Fed is going out of its way to promise that it will remain ‘patient' in raising rates, but they may not have full control of the situation if GDP growth turns out to be anything like what we saw in the last two quarters.
No one expects the u.s. economy to be clocking +5% quarterly GDP growth rates, but anything better relative to the roughly +3% currently expected by the markets will bring back fears of an earlier rate hike. But irrespective of whether the Fed tightening cycle starts early or on time, they will be alone among the major global central banks starting to raise rates for the first time in almost 9 years. The European Central Bank will be getting ready to start a full-fledged QE program while the Bank of Japan will likely continue with its open-ended bond purchase program.
We spent a big part of 2013 worrying about what will happen once the Fed started to ‘Taper' its QE program. Few of us could have foreseen how smooth and uneventful the change turned out to be. If the market's reaction to the first rate hike sometime around the middle of 2015 is similar to how it responded to the end of QE, then we can justifiably look ahead to another positive year for stocks.