2014: The Year Ahead

The question weighing on our minds as 2014 gets underway is: How much more? From its low point in March 2009, the S&P 500 gained a cumulative 200% through the end of 2013. Last year was the best since 1997 for broad-based U.S. equities, and the results are even more impressive when viewed on a risk-adjusted return basis. For the good times to continue, a lot of moving parts will have to fit into place. The Fed, under new chairwoman Janet Yellen, needs to engineer a graceful phase-out of the quantitative easing mechanism that has supported asset prices since the end of the market crash. U.S. companies will need to produce strong earnings to justify current valuation levels, the most expensive since 2007. And economies at home and abroad will have to navigate challenges ranging from soft labor markets to below-target price inflation, unstable credit markets and dysfunctional governments.