Mr. Lascelles and Mr. Schomer view U.S. equities as the best asset class for 2014.
Mr. Lascelles, who doesn't disclose a specific number, forecast the S&P 500 total return, including dividends reinvested, will be in the high single digits, while the MSCI EAFE total return will be in the mid- to high single digits.
He expects the U.S. gross domestic product to reach a real, or inflation adjusted, 2.75% in 2014, up from less than 2% in 2013.
“Markets go up 20% in a modest (economic) growth” in 2013. “So why am I forecasting half the (equity) growth” in an improving economic outlook? Mr. Lascelles said.
“Stocks went up so much because risk appetite rose, not because of earnings soaring. Stocks are now fairly valued. Stocks will have to rise on their own merits” in 2014, Mr. Lascelles said.
Mr. Schomer said he is “still quite bullish on the (U.S.) equity market,” although he added, “clearly the growth rates we saw (in 2013) will not be repeated because we won't get anymore” quantitative easing.
Ticking off the top reasons for his optimism, Mr. Schomer said, “Profit growth is very strong, markets are not overvalued, monetary policy will be accommodative and interest rates will remain low to support (equity) valuation. So we still have a couple more years of very decent equity market growth ahead before we get overbought.”
He projects the total return of the S&P 500 will be between 8% and 10%.
For the rest of the developed world, the MSCI EAFE index will have a total return between 6% and 8%, Mr. Schomer predicted.
Edward F. Keon, managing director and portfolio manager, Quantitative Management Associates LLC, Newark, N.J., forecasts U.S. and European equities will be the best asset classes in 2014.
“My expectation for (economic) growth will be better-than-consensus expectations” propelling the stock markets, Mr. Keon said.
A. Gary Shilling, president of A. Gary Shilling & Co., Springfield, N.J., forecasts a continued weak economy of 2% real GDP growth. The S&P 500 will be positive, Mr. Shilling said, although he didn't give a number.
A weak economy will temper corporate profits, Mr. Shilling said: “It's not an economically driven (equity) market.”
The best asset classes will be long Japanese stocks and short the yen, because of its weakening against the dollar, he said.
Mr. Shilling is upbeat about Treasuries, predicting the 10-year Treasury rate will fall to 2% by the end of 2014.
The biggest risk investors will face is a shock, whether economic or geopolitical, Mr. Shilling said, “something that will force equity investors into an agonizing reappraisal and to realize equities have been supported by the largesse of the Fed and profit margins of unsustainable levels.”
Wells Capital's Mr. Paulsen is glum about U.S. equities. The accelerating economy will create investor anxiety fearing rising inflation and unsustainable growth, said Mr. Paulsen.
He forecasts a bullish 3.5% real GDP, but a flat to 2.5% total return on the S&P 500.
Increased “confidence and better balance sheets ... will help bring out the "animal spirits' in corporations,” bolstering the GDP, Mr. Paulsen said. “The year (2014) is going to start with (investment optimism in) accelerating economic growth and end up with panic of the (Federal Reserve) overheating growth.”
The S&P 500 might run up above 2,000 in the first half and then fear of inflation will create a sell-off, Mr. Paulsen said.
“I don't think the bull market is over — it is just talking a pause” in 2014, Mr. Paulsen said.
Other developed equity markets, Europe and Japan, will outpace the U.S. market, and the emerging markets will perform best of all, for dollar-based investors, because of a weakening dollar, Mr. Paulsen said.
There won't be “an inflation problem but a fear of inflation,” Mr. Paulsen said. That anxiety can be enough to trip up the equity market, he said. “The financial market doesn't have to have a problem for there to be a problem” in perception and potentially damage the market.
In emerging markets, Mr. Schomer is optimistic. “As the U.S grows faster, exports revive. The emerging markets are posed for a big catch-up” after underperforming in recent years.
Yet Mr. Lascelles worried about weakening global export trade and unresolved credit excesses in China and other emerging markets that will slow their economics and dampen their investment markets.
Emerging markets in 2014 “are not likely to return to the growth rates we've grown accustomed to over the last decade,” he said.