Global and U.S. GDP growth is expected to improve in 2014, and domestic equity markets are forecast for another strong year, according to a 2014 outlook webcast with Bank of America Merrill Lynch economists and strategists.
Real GDP growth is expected to increase 3.5% globally and 2.6% in the U.S., up from 2.8% and 1.7%, respectively, in 2013, said Ethan Harris, co-head of global economics research. Mr. Harris said bond tapering from the Federal Reserve will probably start in March, but that it is largely priced into markets already.
“The more interesting story from the Fed is going to be its very dovish directions on policy moving forward,” Mr. Harris said.
David Woo, head of global rates and currencies research, said he is bullish on the U.S. dollar for 2014, after it jumped to No. 1 in an economic strength metric that is focused on unemployment rate, trade balance and fiscal balance. The U.S. ranked just 10th in the metric three years ago, he said.
“The U.S. is the most improved economy in the world in 2013 … and in its strongest economic position in 20 years,” Mr. Woo said. He also thinks Japan and the U.K. will be the most improved economies in 2014.
Savita Subramanian, head of U.S. equity and quantitative strategy, forecast the S&P 500 ending 2014 at 2,000, about an 11% jump from current record high levels. Her long-term themes were stocks over bonds, large cap over small cap and high-quality cash-rich companies.
Corporate bonds will be more attractive than Treasuries next year, said Hans Mikkelsen, global credit strategies. He added high-yield strategies will yield positive returns, though only about half of the gains seen in 2013. He also expects high volatility and low default rates.
U.S. pension funds are actually in a “little bit of a reverse rotation,” Mr. Mikkelsen said. “Funded status improved tremendously, so there's incentive to lock in gains by selling equities for bonds.”