WILL THE STOCK MARKET KEEP GOING UP IN 2014?

No one truly knows the answer to that question and opinions are cheap (including mine) so you should always be skeptical of everything you read. That being said, I will tell you what I think might happen.

I have been very cautious in 2013 and it has hurt my investments because I haven't had as much money in the market as I could have. I have been anticipating a correction that never came. If I had been more willing to buy stocks, I would have made more money but there is nothing I can do about that now.

The Federal Reserve Announcement In December

Last week the Federal Reserve came out with news the stock market loved as it gave a good indication of things going forward. Investors were relieved to hear the the Fed will NOT make any drastic changes in the immediate future and relieving this uncertainty is good for the market. Two very important things the Fed said they are going to were:

1) Keep short term interest rates low (as long as the unemployment rate stays above 6.5%)

Interest rates are VERY important to investors because simple interest is a popular way to invest when rates are high. When you can get 5% or so by just putting money in a bank or a Treasury bill, people will often choose that instead of buying stocks. Interest is, after all, FDIC insured and risk free while the stock market holds lots of risk, especially short term. 

But with very low interest rates like we have had for the last handful of years, there is little incentive to invest that way. Simple interest right now just doesn't give you a big enough return. 

The stock market has become, for the most part, the only place for investors to put their money and hope to make money and that is one of the main reasons it has gone up since 2009. The Federal Reserve's announcement that they will not be upping interest rates anytime soon is good news for stock investors and good news for the market into 2014.

2) Reduce the quantitative easing by $10 billion a month 

For years $85 billion dollars a month have been pumped into the system in an effort to stimulate the economy. This has undoubtedly been good for the stock market but investors have become increasingly worried about what would happen when that ends. Also, how will it end: a little at a time or decreasing the easing in chunks?

Last week's news that "only" $10 billion a month would be the reduction means that the Fed is going to take things slowly. That means for buyers and sellers of stocks, they can go into 2014 knowing that nothing from the Federal Reserve is going to upset the apple cart at least for awhile. A lot of other things can happen to the economy but at least there is some certainty and clarity that investors can rely on from Washington. 

Will Stocks Go Up In 2014?

So, back to the real question of whether the stock market will have another good year in 2014? Based on this good news from the Federal Reserve, those two things remain in place for a continuation of rising stock prices. While there are hundreds of variables associated with the direction of market, at least those two big ones should NOT be a problem for awhile. 

Again, there are many other things that could make investors nervous and lead the market lower so even though we just had this good news, nothing is guaranteed. The stock market ebbs and flows at the whim of investors and their sentiment can change on a dime.