[January 07, 2014]

Prudential experts: Equity markets poised for growth in 2014 as economy improves, the "new normal" looks like the "old normal" as investors gain confidence

Prudential market experts expect significant growth in the financial markets in 2014 as the U.S. and global economies continue to recover amid central bank actions, low inflation and an improved business climate. They outlined their views at Prudential Financial, Inc.'s (NYSE:PRU) 2014 Global Economic and Retirement Outlook briefing in New York today.

A replay of the outlook briefing is available on Prudential's newsroom.

Ed Keon, managing director of Quantitative Management Associates, said the more global markets and economies improve, the more they begin to resemble their pre-2008 levels. He expects significant growth in 2014 driven in part by technological innovations and a possible positive "shock" in energy production in the U.S. and around the world. He expects the Federal Reserve to remain on the sidelines for the next couple of years, keeping interest rates low, even as it begins to taper its bond-buying program.

"The new normal is beginning to look like the old normal. We've seen significant growth in 2013 and we're now experiencing a robust economy that we used to think of as normal," Keon said.

However he warns investors not to be complacent.

"The key to investing is to think one or two moves ahead of the market. Our asset allocation portfolios remain heavily overweight in stocks today, but our research is focused on factors that might cause the next bear market. By preparing for the eventual downturn and evaluating when and why it might happen, we can more confidently harvest the gains while this bull market runs. For now, we think the most likely causes of a new bear, high inflation and/or contractionary monetary policy, are well down the road."

Quincy Krosby, a Prudential market strategist, is also cautiously optimistic about 2014, noting that a major focus for U.S. investors will be the change in leadership at the Federal Reserve from outgoing chairman Ben Bernanke to Janet Yellen. Additionally, she believes many investors will be lookig for opportunities outside the U.S. in places such as Japan where it remains to be seen whether continued quantitative easing will ultimately prove successful.

"Monetary policy is moving into a period where Dr. Yellen will be focusing on forward guidance. The economy is getting better. The question that we have is how forward can forward guidance carry us? Perhaps it's more of a stock picker's market than a QE (quantitative easing) cures all market," Krosby said.

John Praveen, chief investment strategist for Prudential International Investments Advisers, also expects continued growth in 2014 fueled by strengthening global growth, low interest rates, liquidity support, an earnings rebound, fair valuations and easing global risks. He also noted that the U.S. is likely to be a key driver for global markets depending on the actions of the Federal Reserve. He expects double-digit gains in the global stock markets, with the Dow Jones Industrial Average reaching more than 18,000 and Eurozone and Japan stocks to outperform the U.S. as there is more potential for price/earnings expansion in those markets. He too expects the European Central Bank and the Bank of Japan to undertake further easing measures while the U.S. Fed begins to taper its quantitative easing program.

"I'm reminded of that old saying, 'When the U.S. sneezed, the rest of the world caught a cold.' This year, we got a strong and unambiguous reminder of that. When the Fed begins to taper, that has clear implications for global markets," Praveen said. "There is deflationary pressure in the Eurozone, so we can expect further easing measures by the ECB. Japan is more of a trading market than a resurging market, and the emerging markets are going to be a big wild card this year. The easing of inflationary pressures might give them room to ease policy. If that happens, emerging markets will do well."

In the fixed income markets, Michael Lillard, chief investment officer of Prudential Fixed Income, believes that ongoing, global monetary policy actions and historically low default rates will support the credit markets in 2014 despite the Federal Reserve's initial steps to unwind its massive bond-buying program. He sees opportunities in higher-quality high yield bonds, longer-duration investment grade corporate bonds and short-duration emerging markets debt.

"With the 10-year treasury rate skirting three percent, we think the market has already priced in the Fed's taper and that rates should hover around current levels unless economic growth surprises to the upside, or the Fed moves more aggressively than expected to end its bond purchases," Lillard said. "Conversely, rates could trend lower during the year if the economic backdrop disappoints and inflation remains below the Fed's target."

Jamie Kalamarides, senior vice president of Institutional Investment Solutions at Prudential Retirement, agrees with the optimistic assessments of Prudential's market experts and believes investors can best take advantage of these trends by participating in their workplace retirement plan using a diversified portfolio or target-date funds.

"A secure retirement is achievable for every American that has access to a 401k or similar plan. If investors take full advantage of their workplace options to save more and continue to diversify, they can be prepared and have adequate income in retirement to supplement Social Security," Kalamarides said. "We think most investors can take simple steps at the workplace to save more, diversify more, and create more guaranteed retirement income."

Prudential Financial, Inc. (NYSE:PRU), a financial services leader with more than $1 trillion of assets under management as of September 30, 2013, has operations in the United States, Asia, Europe, and Latin America. Prudential's diverse and talented employees are committed to helping individual and institutional customers grow and protect their wealth through a variety of products and services, including life insurance, annuities, retirement-related services, mutual funds and investment management. In the U.S., Prudential's iconic Rock symbol has stood for strength, stability, expertise and innovation for more than a century. For more information, please visit www.news.prudential.com.

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