2013 was a stellar year for stocks — the S&P 500 reached new highs and finished with a gain of 30%.  Other developed markets performed well too — the MSCI All Country World Index (ACWI) rose 23% — but the MSCI Emerging Markets index fell 3%. As for 2014, we started the year with a dip begging the question of whether a material correction might be in store, as some observers have predicted.

If the global economy continues to grow moderately, profits can still grind higher.  From a valuation perspective, equities do not seem terribly expensive by traditional metrics e.g., the trailing P/E of the S&P 500 is 17.3x, as compared to a twenty-year average of 19.2x.  This combination of continued earnings growth and reasonable valuations should be supportive of stock prices….

Michael Geraghty is the founder Informed Investor, LLC a consultancy specializing in thought leadership that produces bespoke research reports for institutional investors.  Michael has over three decades of experience in the financial services industry.  He has worked as an investment strategist at a number of leading firms.

If you are a subscriber click here to login and read the complete article.  For more information about the JSFB click here or contact us to learn more about Cornerstone’s research and service offering.