All things considered, it’s a pretty good time to be an investor. The S&P 500 index has climbed nearly 160 percent since hitting its post-crisis low in early 2009 and more than 21 percent this year to date. Even with the crisis wrecking the stock market in 2008 and into early 2009, $10,000 invested in an S&P 500 index fund like the one maintained by Vanguard in 2003 is now worth more than $20,000 as of the end of November.
To a large degree, investors can thank the U.S. Federal Reserve for this rally. The Fed reduced the target federal funds rate to the zero bound in 2008 and shortly thereafter launched the first round of quantitative easing. Today, the Fed is engaged in its third discrete round of QE, through which it is purchasing $85 billion in agency mortgage-backed securities and longer-term Treasuries each month.
One side effect of this stimulus is lower real interest rates, which increases equity valuations as investors reach for yield in stocks. The low-rate environment has also encouraged spending in interest-rate sensitive businesses, which has led to a real pick-up in business activity. This, in turn, supports equity valuations.
The stimulus won’t last forever, and while tapering may begin soon, QE is expected to last well into — if not all the way through — 2014. Because of this and because the U.S. economy is stumbling through a real recovery, many investors maintain a bullish position heading into 2014. A recent AAII Sentiment Survey showed bullish sentiment at 41.3 percent, above the historic average of 39 percent, and bearish sentiment at 25 percent, below the historic average of 30.5 percent.
In the spirit of the bull, here are a few choice stock picks for 2014, curated by Fidelity from interviews with fund managers. All stocks are those that the fund managers would buy at today’s prices and hold for at least three years.