U. S. and Japanese stock markets soared in 2013 as investors were encouraged by central bank efforts to make it easier to buy homes, equipment and other goods by pushing down interest rates and promising to keep them there for a while. Will stocks continue to rise in 2014?
Japan's Nikkei was up 57 percent in 2013, the best performance in decades. In the United States, the S&P 500 gained nearly 30 percent for the year, the Dow advanced 27 percent, and the NASDAQ jumped 38 percent.
Stocks are up, in part because of stimulus efforts by the U.S. and Japanese central banks. The U.S. Federal Reserve cut short-term interest rates nearly to zero a few years ago. More recently, the Fed has been working to push long-term interest rates down with a complex program that involved purchasing billions of dollars' worth of securities every month. The central bank recently announced it would reduce that program because the economy no longer needs quite so much help.
Nick Ventura of Ventura Wealth Management in New Jersey calls some of these central bank actions a "global gamble" that has worked -- at least so far.
In 2013, the United States saw modest improvements in growth, housing prices and the unemployment rate. Ventura said the improving economy meant fewer wild swings in prices and fewer worried investors.
"Every time there was the slightest pullback in stock prices it was rewarded with a fresh round of buying. So there is a growing confidence in the U.S. recovery and I think that's what really perked up the U.S. economy," said Ventura.
Experts report improvements in consumer and investor confidence in late 2013. Growing confidence apparently is making investors more willing to take modest risks and buy some kinds of stocks.
A study published Tuesday by the Boston investment firm State Street shows a significant improvement in investor confidence between November and December. That growing confidence apparently is making investors more willing to take modest risks and buy some kinds of stocks.
The Wall Street Journal reports investors have been shunning complex strategies and are simply seeking stocks with low prices and strong earning potential.
Meanwhile, The Financial Times reports that investments thought to offer a safe haven for money in troubled economic times, like gold and government bonds, saw fewer buyers.
Some analysts predict stock prices will continue to climb in 2014, but at a slower pace. Investment advisor and author Matthew Tuttle, of Tuttle Tactical Management in Stamford, Connecticut, said stock prices will increase, but so will risk.
"We have a 'house of cards' [fragile economy], but we don't see the cards toppling really until 2016," he said. "We are definitely forming a bubble [pushing prices toward unsustainable levels] but that bubble still has a lot of room to grow."
Tuttle says it is crucial that the U.S. Federal Reserve moves gradually and carefully as it reverses the low interest rate policies that spurred rising stock prices.
The Fed eventually will have to cut stimulus efforts to avoid sparking inflation that could hurt the economy. For the moment, analysts say overcapacity in the economy is keeping inflation from taking hold.