Stock Market Forecast 2014: Why the Market Will Keep Surging in the New Year

Money Morning Article of the Week

by Michael Robinson, Money Morning

If you’ve been following our twice-weekly conversations at Strategic Tech Investor, you know that I’m very bullish about technology stocks.

But I want to let you in on a little secret …

I’m also bullish about the overall stock market.

In fact, I’m predicting that the Standard & Poor’s 500 Index will advance 15% in 2014, rising from the current 1,795 to 2,065. That will not only take the closely watched index up through the psychologically important 2,000 level, it will take it to the highest level in history.

And that’s the broad market index.

I believe that the tech sector could do even better.

So let’s start with my stock market forecast 2014 – and conclude our talk by looking at an aggressive tech stock that I believe will trounce the market averages in the New Year.

The Zooming Markets

If you’re getting nervous in the face of this historic market rally, I can certainly understand. Over the past five years, the S&P has gained 105%. The index is up nearly 23% so far this year.

But you can also have some confidence in my forecast.

Back on June 28 – a point at which tech-sector analysts and other market pundits were increasingly predicting that the rally in technology shares would end – I told you to expect a big second half of the year for tech stocks.

Since that time, the tech-focused Nasdaq Composite Index has zoomed 19.5% – versus 11.8% for the S&P.

What I’m telling you now is that the overall stock market should continue to surge in 2014.

If you drill down and look at the facts, there’s simply no reason to let fear get the better of you. Signs that the economy – and the stock market – will remain healthy are everywhere.

Take what’s happening with lumber. Prices recently hit a seven-month high of $378.30 per thousand board feet.

And there’s a very good reason why demand for lumber is so strong. In fact, it’s one of the three reasons I’m going to share with you that gives me such confidence that the American economy – and the stock market we keep score by – will continue to display muscle…

Housing Heats Up

Of all the factors that affect the economy and the stock market these days, the housing sector remains by far the most emotional.

Quite literally, it hits people right where they live.

If you happen to live in parts of Houston or Chicago – where real estate values are predicted to remain flat or slightly down this year – then national stats don’t make you feel all that much better.

On the other hand, there’s just no denying the impact that a strong national market for real estate can have on the economy.

When people buy new homes, they end up purchasing a lot of furnishings: refrigerators, dishwashers, security systems, furniture, and more. They also hire painters, designers, electricians, and carpenters.

Consider that construction employment totaled 5.83 million workers in October, an increase of 185,000 from a year earlier. The Associated General Contractors of America, a trade group, says that was the sector’s highest jobs level since August 2009.

A look at the underlying numbers tells you why.

The National Association of Realtors (NAR) just reported that home sales were up 6% in October on a year-over-year basis – with sales reaching 5.14 million units. Even more important: On a year-over-year basis, that October advance means that housing sales have now increased for 28 months in a row.

Rising home values just make people feel richer. Economists refer to it as the “wealth effect” and have proven that it correlates with increases in car sales or growing investments in the stock market.

Automakers Put the Pedal to the Metal

The last time I talked to you about my next-door neighbor Steve, he was busy cutting down Eucalyptus trees.

That was back on Sept. 13. At the time, we talked about how Steve’s willingness to spend thousands to cut down trees in order to better the view from his window was a good sign for investors.

Since that time, the S&P 500 has gained 7%. For the average investor that would normally be a great year. Data compiled by the St. Louis Fed shows that the average compound rate for the market in the decade ending last year was 7.02%.

That’s why Steve’s decision to buy a new Infiniti sedan is so important for the market – and for the U.S. economy.

The spinoff benefit from new car sales is huge.

Today’s new vehicles are essentially innovation on wheels. Take a car or truck apart today and you find a bevy of semiconductors, advanced sensors, sophisticated in-dash multi-media “infotainment systems,” not to mention GPS and blue-tooth integration with your mobile device.
Truth be told, Steve’s decision to get a new car is part of a huge national trend.

Auto analyst J.D. Powers & Associates notes that the U.S. car market saw $1 billion in sales every single day in November. The industry’s $30 billion cash inflow was up 10% from last year, and its sales for the month were a record.

Thanks in part to “Black Friday” sales incentives – but also fueled by intriguing new models – American auto sales zoomed to an unexpectedly high annualized selling rate of 16.4 million in November. That was well ahead of the 15.3 million estimated in October, according to Autodata.

In a conference call with analysts and journalists, General Motors Chief Economist Mustafa Mohatarem said that a stable labor market, stable oil prices, and record household net worth numbers contributed to the increase.

Expect car sales to remain strong for some time to come: My buddy Steve had been keeping his aging Nissan truck running by spending way too much money at the repair shop.

And many other Americans are doing the same thing: Research firm Polk notes that the average age of cars on the road today is exceptionally long-of-tooth – 11.4 years old.

Electronic Gadget Sales Are Zooming

Gadgets are luxury items – and purchases soar when consumers are confident.

That’s what we’re seeing now. Apple Inc. (Nasdaq: AAPL) stock has surged nearly 40% since June. The company is having a great holiday season, and will enter the New Year with enormous momentum behind it.

Apple sold a record 9 million iPhones in a single weekend when two new versions launched in September. If my recent visit to a local Apple store is any indication – and I think it is – Apple will enjoy a great Christmas and an even better New Year.

There’s also the videogame sector, which is benefiting in a big way from having two new gaming systems introduced in November. The Sony Corp. (NYSE ADR: SNE) PlayStation 4 and the Microsoft Corp. (Nasdaq: MSFT) Xbox One are both new to the market this year.

Respected market researcher Gartner says the global video market will hit $93 billion this year, up nearly 18% from $79 billion last year. And there’s still more growth ahead: Gartner is forecasting another 19% increase by 2015, when the sector – computer and smartphone games, software titles, and the actual gaming consoles – will reach $111 billion in sales. Consoles still rank as the largest segment of the market with projected 2013 sales of $44.3 billion – or roughly half the entire industry.

When folks feel secure – as these statistics and anecdotes seem to show – they buy more “stuff.” That’s bullish for corporate profits – and for stock prices.

Consumers are also more willing to invest when they feel flush, funneling liquidity into stocks – also bullish.

I’m very optimistic about the overall stock market in 2014. And, as is usually the case, the tech sector will continue to lead the way. Biotech, Big Data, and Cloud Computing firms will also increase sales, profits, and stock prices next year.

So let’s talk about a great profit play that I believe will benefit from all we’ve talked about here today. It’s a small firm, meaning the risk will be higher than normal. But the company’s high-growth rate, and ability to generate profits, means this $23 stock will have a lot of running room in 2014.

Stock Market 2014: Cashing In

The company in question is Ambarella Inc. (Nasdaq: AMBA), a nimble small-cap firm that makes semiconductors for video compression and image processing. The company’s chips are used in high-definition (HD) video cameras for sports and security, as well as in digital still cameras and automotive video recorders.

The company recently introduced a new chip for the consumer digital video market for what are called “4K cameras,” which have four times the resolution of today’s HD video cameras.

With a market cap of $652 million, Ambarella has increased earnings per share (EPS) by 27% over the past three years. At that rate, earnings – and the company’s stock price – could double in less than three years.

Stocks aren’t the only investment that I’m watching.

In fact, I’ve got my eye on a phenomenon that is white-hot right now.

I’m referring to bitcoins.

If you’ve been following the headlines about bitcoins of late, you know that the “virtual currency” has soared from $131 to $1,150 in just the past two months – a return of 778%.

It’s one heck of a story.

And I’ve got an amazing way for you to learn all about it. Take a look here and you’ll see what I mean.