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Wouldn’t it be great to predict where the market is going to go in 2014?

Well, it’s a question that every investor wants the answer to. Last year in January I predicted a huge bull market, and that’s what happened this year with the stock market up over 24% YTD. And in an attempt to gain clarity on the current state of the stock market going into 2014, we reached out to some of the best traders and investors in the world.

These are the individuals that you see on CNBC. These are the traders that are making a living from their investments. And while they wouldn’t give up all of their secrets, most shared enough insights that we could get an interesting picture of what to expect this year.

Overall, they said the following:

As a whole, most were bullish on 2014:

There were only two major concerns that every investor shared: a correction is looming and the Fed taper will cause a slowdown in 2014. It was almost split between the two scenarios:

When it came to which sectors and markets would perform best in 2014, it was a mixed bag, with international equities and emerging markets being the most mentioned:

As for the sectors to avoid, it was pretty clear on two areas: US equities and government bonds:

Here’s what each of them had to say individually:

Ivan Hoff

Ivan Hoff is the creator of the StockTwits 50 list and shares his investing insights on Ivanhoff.com. You can follow him on Twitter @ivanhoff.

I don’t have the illusion that I can predict the future and I don’t have to in order to make money. I don’t know which are likely to be the best-performing sectors next year. My educated guess is that emerging markets will try to close the performance gap with U.S. equities.

In late 2012, most strategists were very pessimistic for 2013 and the S&P 500 had an amazing year. This time, almost everyone is excessively bullish and optimistic, so counterintuitively we will likely have a lot more challenging and volatile 2014.

My 2014 strategy is just like my 2013 strategy, which is just like my any-other-year’s strategy: keep my eyes open for notable relative strength during market pullbacks and buy stocks that emerge to new 52-week highs from solid technical bases. It is not hard to spot a great technical setup in a high-growth stock. It is much harder to own a position size big enough to make a difference in your returns.

I don’t know what the best-performing stocks of 2014 will be. All I know is that they are likely to come from industries very few expect. I also know that I am going to add to my winners and cut my losers, which will help me have another good year.

Bill Stromberg

Bill Stromberg is the head of equity at T. Rowe Price. You can follow them on Twitter @TRowePrice.

Aggressive central bank stimulus has helped developed market economies recover from the global financial crisis of 2007–2009. Many investors moved away from equities and into bonds during that time, but long-term equity investors fared the best during the downturn and recovery.

Risk/reward is now more balanced and investors should be more risk-aware. Confidence has been restored, but it is important to be vigilant as the U.S. bull market is aging. International investments, especially in emerging markets, represent the best long-term value from here in fixed income and equity.

Charles E. Kirk

Charles E. Kirk is a full-time independent trader who helps traders at The Kirk Report. You can follow him on Twitter @TheKirkReport.

My strategy is the exact same as last year, which is to follow and trade the price action and the technical patterns that develop from it above all else. This includes what I personally think is going to happen, what I want to happen, and what I’m afraid of what will happen in 2014.

Doing this consistently, especially in recent years, as the volume of noise explodes in the market, has been the best approach and I expect that to continue not only next year but for many years to come.

Barry Ritholtz

Barry Ritholtz is the chief investment officer at Ritholtz Investment Management, and also writes at The Big Picture. You can follow him on Twitter @ritholtz.

Our strategy does not change just because we flip the calendar over. We continue to have a broad asset allocation model, with exposure to asset classes that include U.S., European, and emerging market equities.

Frank Zorrilla

Frank Zorrilla is the founder and chief investment officer of Zor Capital LLC. He began his Wall Street career 10 days after his 20th birthday and currently blogs at ZorTrades. You can follow him on Twitter @ZorTrades.

My strategy for 2014 is the same as every year: the goal is to outperform the market with very little low volatility regardless of what the market is doing. As far as sectors are concerned, I usually take a look at the worst-performing sector of the previous year for opportunities on the long side, if they arise. I don’t go into the year with S&P 500 targets or with what is going to be the go-to sector, etc. I see what is happening and I adapt.

Brian Shannon

Brian Shannon is a full-time trader, educator, author, and is also the founder of Alpha Trends. You can also find him on Twitter @AlphaTrends.

My strategy is no different than it was for 2013, 2012, or any other year. I am a trend trader and all of my market decisions are based on price action. In 2014, I will continue to listen to the market, not news for my trades. I think that 2013 should have been a great lesson for traders and investors to realize that it is price action that matters, not the news.

Have a plan which is based on objective analysis and manage risk — that is the simple formula for success. I don’t like to make predictions. My best advice is when you see predictions, take them at face value and use them as a starting point to do your own research and “make the trade your own.” Whatever your style is, I hope 2014 is a great year for you!

David G. Barnes

David G. Barnes is the president and CEO of Heber Fuger Wendin, Inc., an investment advisory firm established in 1934 that has $4.6 billion in assets under management.

My best guess for the U.S. economy in 2014 is a continued slow economic recovery, rising interest rates, a very gradual increase in inflation (maybe up to 2%), the start or continuation of bond-purchase tapering by the Federal Reserve, an eventual end of the quantitative easing (the government’s bond-buying program), more promises from the Fed to keep short-term interest rates low for a long time (aka “forward guidance”), and talk in Washington of eliminating the tax exemption for municipal bonds.

The stock and bond markets will continue to bounce around, so my general advice for most investors with a 401(k) or IRA is to avoid trying to time the market. Instead, try dollar-cost averaging: invest a fixed amount on a regular basis in low-cost index funds. This way you automatically buy more shares with your fixed amount when the market dips and fewer shares when the market spikes. And avoid the temptation of watching the daily market gyrations on TV. In other words, set it and forget it.

Mebane Faber

Mebane Faber is the founder and chief investment officer at Cambria Investment Management. You can also follow him on Twitter @MebFaber.

On a global basis, stocks are cheap. Unfortunately, that isn’t the case at home here in the United States. Out of 44 developed and emerging countries we track, the U.S. is the most expensive on a long-term, P/E ratio basis (Shiller 10-year PE, or CAPE). Now, that doesn’t mean stocks will crash, or even go down. What it does mean is returns will be muted over the next 5 to 10 years, and there are better opportunities abroad.

Considering the U.S. is nearly half of world market capitalization, investors should look to invest at least half of their assets abroad. A 60 to 80% foreign stock exposure for the equity allocation is not unrealistic.

Lastly, within the U.S., be wary of high dividend-yielding companies and small-cap stocks, both of which are very expensive relative to historical levels. A much better approach is to be size agnostic, and to look at all of the cash flows, what we call “shareholder yield.” And lastly, use a valuation screen to make sure you’re not buying what is expensive!

David Houle

David Houle, CFA, is the co-founder and portfolio manager at Season Investments, LLC. You can find him on Twitter @davidhoule.

It’s looking like 2014 will be shaped by coordinated economic expansion across most of the major economic players (U.S., Europe, Japan, China, etc.). We haven’t seen a backdrop like this in the past several years, so it could support investor sentiment and risk-taking as we enter the new year.

That said, risk assets are no longer cheap and sentiment is overly bullish, so investment gains will need to be driven primarily by growth in fundamentals rather than multiple expansion. Fiscal policy in the U.S. will be key to watch, as the private sector seems to be taking its cue, at least to a certain extent, from whether or not there are major policy uncertainties waiting around the next corner. There is a lot of pent up private sector investment that is currently being held back by this uncertainty.

Our firm’s policy is to maintain broad diversification in client portfolios while making small adjustments on the margins of our allocation strategy in response to the changing landscape. Thus, we will continue to hold equities at or above long-term targets while having a sell discipline in place to avoid participating in an unexpected market crash.

We will be underweight bonds in light of low yields and potentially rising rates, and will use that excess capital to overweight absolute return-oriented managers and strategies. We will maintain a core position in gold, but will be underweight in our long-term targets in broader commodities in light of macro fundamentals.

Meanwhile, we will emphasize alternative sources of income such as real estate and private lending and will be working hard to identify non-traditional opportunities for our clients to enhance their core holdings in traditional assets.

Bard Malovany

Bard Malovany is a financial advisor who writes at Advice to Wealth, and he is also a registered representative of Lincoln Financial Advisors Corp., a broker-dealer.

I don’t have precise prognostications for 2014, but I do have some longer-term thoughts about the financial markets.

Specifically, stocks of large domestic companies, by most valuation metrics that have historically been predictive, are expensive. Small company stocks are even more so. International equities, on the other hand (both developed and emerging economies), seem underpriced based on most metrics. Similarly, bonds across the spectrum are expensive.

While that doesn’t have too much predictive value in the near-term, it does suggest lower-than-historic returns from domestic returns and relatively stronger returns from international markets.

Justice “Jack Sparrow” Litle

Jack Sparrow is the CEO of Mercenary Trader. He is also a hedge fund manager and publisher. You can follow him on Twitter @MercenaryJack.

We are “go anywhere” traders and “big game hunters,” which means two things. First, that we can trade any liquid asset class and will migrate to wherever the most opportunity resides; and second, that we focus on major trends and monster gains, as opposed to messing around with scalping or trying to grab a few ticks.

For 2014 we see two major themes: the end of stock market levitation and the return of the U.S. dollar. For the past few years markets have risen on the “magic pixie dust” of quantitative easing (QE). The impacts of QE have been more psychological than anything. The actual QE process is not money printing or anything of the kind — it is merely an inert asset swap.

With that said, the Federal Reserve’s willingness to “push investors out on the risk curve” by perpetuating near-zero interest rates has caused inflation to show up in risk assets, if not anywhere else, and fueled a strong complacency trend. In 2014 the multi-year period of Fed-enabled levitating markets will end, creating some excellent shorting opportunities. When Bernanke steps down in January 2014 it will be the end of an era . . . and the beginning of a new paradigm. Bears never die, they only hibernate — and the bear will return in 2014.

Second, the U.S. dollar is going to go on a rampage in 2014. Those who anticipate the “death of the dollar’ fundamentally underestimate the strength of the U.S. economy and the value of American assets, while misunderstanding macro forces in general. In terms of recoverable oil and gas reserves and real estate alone, the U.S. government is sitting on more than $200 trillion worth of assets. This says nothing of private assets (hundreds of trillions more) that the Uncle Sam has the power to tax, or the more than $70 trillion in household net worth.

Compared to all this, the U.S.’ roughly $17.3 trillion in national debt is the equivalent of a mid-sized car payment. The U.S. economy is strong and getting stronger, as both David Rosenberg and BAML analyst David Woo have recently highlighted.

As a result, in 2014, growth differentials will come home to roost and result in a serious secular uptrend for the greenback. Our largest exposures are in dollar-bullish forex positions: long dollar/yen, short Aussie dollar, and short Canadian dollar. We will add short euros at some point in 2014 as well. Dollar-bullish positions will make an absolute killing in the coming year as a combination of “risk-off” plus rising U.S. interest rates on Fed stimulus withdrawal results in a repatriation of investment dollars from Europe (where deflation troubles lurk) and further malaise in emerging market equities.

We anticipate making a lot of money on the bear side of equities in 2014, but even more in forex, which will break out of the box with true monster trends for the first time in years. 2014 is going to be horrible for investors caught flat-footed, but awesome for traders with the vision and the guts to exploit these trends.

Michael Gauthier

Michael Gauthier is the CEO of Strategic Income Group, and also runs a Christian-based financial education site, Truth in Financial Planning.

We still like U.S. equities. The energy revolution is here and still one of the favored sectors. Most of the institutions are using MLPs as a way to gain access to this area for great yield. We use the Alerian MLP (AMLP). We believe that U.S. equities are no longer undervalued but are now fairly valued. We have not seen any major correction and a 10% correction could be coming. We would use this opportunity to be a buyer if that happens.

Another major area of focus was international developed countries. Europe is looking quite attractive and we see that the international developed is trading at about a 20% discount. We would recommend to be adding to this allocation. We utilize some of the ETFs and pair them with some active managers for this (VXUS, TRWAX, CAGAX). Overall we still are overweight with equities with an increasing allocation to international and underweight with fixed income. We are reducing as much government bond exposure as possible.

Larry Ludwig

Larry Ludwig is the creator of Investor Junkie, where he focuses on how to leverage your investments to make more money.

For 2014, with all of this talk about the Federal Reserve tapering, I believe it will be a non-event. While it’s possible in 2014 the Fed will stop their $85 billion-a-month bond purchasing program, they still will be keeping the Federal funds rate at 0 to 0.25%. I will continue to invest more into P2P companies, such as Lending Club and Prosper, regardless. They will still continue to be an attractive investment, even if rates do rise.

Outside of this, most of my long-term asset allocation remains the same. We might have a correction in 2014, and if we do, I plan on adding more stocks to my portfolio at that time.

Trader Stewie

Trader Stewie is the creator of The Art of Trading and has been a professional trader and investor for over 15 years. You can follow him on Twitter @traderstewie.

My strategy for 2014 is no different than what I used in 2013: focus on short-term bursts in momentum, focusing purely on the underlying trend that is going up. Going into 2014, I am bullish. But I think at some point we are going to see a big pullback of at least 10 to 15%, which will likely create a great buying opportunity. However, it will probably be very scary and very hard to buy into it initially, so surviving that pullback will be crucial.

Marc Chandler

Marc Chandler is the head of global currency strategy for Brown Brothers Harriman, and also blogs at Marc to Market.

The broad characteristics of the U.S. investment climate are unlikely to change very much in the first part of next year. The largest policy change is the beginning of the long-awaited slowing of the Federal Reserve’s long-term asset purchases. The process will likely be gradual and may take the better part of 2014 to come to a complete stop. The drag from fiscal policy will likely lessen. The roughly 1.7% annual growth in employment since 2009 is set to continue and underpin a continued expansion of the world’s largest economy.

Investors have come around to the Federal Reserve’s admonishments that tapering is not tightening. Unlike in Operation Twist, under which the Fed sold short-term Treasury securities and bought long-term, the current guidance is that the Fed does not want to see short-term rates rise. It is more willing to accept curve steepening.

The $10 billion of tapering, divided equally between Treasurys and mortgage-backed securities, announced December 18, speaks to the Federal Reserve’s gradualism. The forward guidance suggests a rate hike is highly unlikely in 2014. Although the probable expiration of emergency jobless benefits at the start of the year will likely push the unemployment rate down through a further reduction in the participation rate, the Federal Reserve has signaled that the unemployment rate is likely to fall below the 6.5% threshold it has identified.

We had expected the tapering move and greater forward guidance to be delivered by the new Federal Reserve chair. We had argued that the Fed’s forward guidance would be more credible if the chairman that will implement it, issued it. Due in part to our concern that after an inventory-fueled 3.6% SAAR Q3 GDP, the U.S. economy is going to slow back to what now seems to be its growth trend of around 2.25 to 2.50%. In addition, we are concerned about downside risks to the core PCE deflator in the coming months. Finally, with Republicans seeking more spending cuts in exchange for lifting the debt ceiling, which President Obama refuses to negotiate, another fiscal impasse cannot be ruled out.

The Chinese economy may slow modestly in the coming quarters, though officials will likely respond to evidence that growth is falling below 7.0%. The focus has shifted toward the implementation of reforms announced by the Third Plenum. These entail financial and governing reforms. The special economic zone in Shanghai will be viewed as a test case of the ability of the reformers to implement their program over the obstacles posed by inertia, corruption, and outright opposition.

The first year of Abenomics has seen growth strengthen, deflation pressures ease, the yen weaken, and Japanese equities advance smartly. The early turbulence of Japanese government bonds has eased and nominal yields remain low (real rates negative). The second year is bound to be more challenging, as the economy has lost momentum in the second half of 2013. There may be some increased consumption ahead of the April 1st hike in the retail sales tax from 5 to 8%, but this is likely to be borrowed from subsequent quarters. This may not occur until closer to the middle of the year, when the Bank of Japan decides to provide more financial support for the expansion in addition to extra insurance around its 2% inflation goal (excluding fresh food and the retail sales tax).

Japanese bond yields, on the other hand, may rise in 2014, but not because the BOJ stops its buying program. Rather, the low rates of return will push institutional investors, including the Government Pension Investment Fund, into equities. New government-sponsored investment schemes are designed to encourage equity investment, though given the risk-averse nature of Japanese households, relatively high dividend stocks will likely be preferred. We see scope for around a 5 to 7% depreciation of the yen as the dollar moves into a new trading range against it, while the dollar stays range-bound against the euro. Later in the year, we expect the dollar-yen pair to find a new trading range as the dollar trends higher against the euro.

Dividend Growth Investor

Dividend Growth Investor focuses on investing in stocks with above-average dividend growth. You can find him at Dividend Growth Investor.

I am finding value in following companies which have strong recognizable brands, sell at fair valuations, and could increase earnings over the next 15 to 20 years. I believe that each one of these companies would be a very good addition to a diversified dividend-producing portfolio. I’m looking at these companies as great long-term holdings to hold “forever.” They are selling at good prices to acquire today, and are good candidates for holding in 2014 and for a long time after that.

Kathryn Cicoletti

Kathryn is the founder of MakinSense Babe, where she focuses on making sense of financial matters for those who are still learning. Follow her on Twitter @MakinSenseBabe.

I have no clue what is going to happen to the U.S. or global economy, or the stock market. So let’s start with this: One of the biggest misconceptions people have is they think economic growth in the U.S. is an indicator of how the U.S. stock market will perform.

It’s not a good indicator. There is actually little correlation between economic growth (GDP) and stock market returns in developed markets. But here’s the thing . . . macroeconomic numbers, like economic growth and the unemployment rate in the U.S., are driving Fed policy, and “what the Fed does” will impact your investments. When I say “what the Fed does,” I mean, the Fed will impact your investment returns (negatively) when they raise short- and long-term interest rates. So there’s an indirect correlation, but really, the Fed is dictating what happens to your investments for a while.

For that reason, I own zero bond funds. U.S. government bond funds are overvalued and I don’t have an interest in investment-grade corporate bond funds either. (Corporate bonds are just loans that big companies issue. You loan them money just like you’d loan the government money, and you’d collect interest from them in return.)

Stock funds are a mixed bag. A U.S. stock index fund is expensive relative to an international (ex-U.S.) stock index fund. But while U.S. stock funds are more expensive than international stock index funds, they aren’t hugely overvalued when you compare them to the late 90s. When I say expensive, I mean when you look at the P/E ratio (not the cost, or annual management fee). So yes, everyone is talking about “a bubble” and we all understand why: the U.S. stock market could be trading higher than what underlying fundamentals support (like how fast or slow the economy is growing), but it doesn’t mean that there isn’t more room on the upside before things head back down.

My investments are allocated across four Vanguard funds. They’re all stock funds, with a core holding in an international stock fund. I will reduce some of my stock fund exposure and move into a bond fund once the interest rate I’m paid to own bonds (or loan money to the government or corporation) becomes attractive. In 2014 I’m paying close attention to what the Fed does. There is no way I can time the market, but, there are certain numbers you can pay attention to that help you make informed decisions on your asset allocation.

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