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Market Views - Economic Outlook 2014

Outlook 2014

Interest Rates

Janet Yellen will become the new FED Chairwoman in early 2014. Judging from her writings, employment will be her major theme for the FED. The FED Funds Rate will remain low since unemployment is still elevated while inflation remains low.

On the other hand, the issue of tapering Quantitative Easing will greatly affect markets. Since 2008, cessations of QE have tended to cause interest rates to decline, not rise. But should the FED pull back too soon or too strongly, longer term interest rates could jump dramatically and would likely signal the end of our 30-year bond bull market.

To reduce volatility and preserve capital in the fixed income area, new strategies should be implemented in 2014. Investors should consider positioning portfolios with lower durations than in the past. New types of securities, such as Floating Rate Notes could be added. In order to earn income, investors may look to bonds with higher coupons. Many highly rated Municipal Bonds offer yields superior to that of an equivalent Treasury while their tax free income is an added plus. 2014 will likely prove to be a challenging year for bond investors.
Positives Negatives
Positive Inflation to remain stable Negative Historically low rates cause investors to "reach for yield" and incur higher credit risk
Positive New FED Chair's policies likely accommodative Negative QE Taper may shock longer term bonds
Positive FED Funds Rate to remain low Negative Debt Ceiling issues delayed, not solved
Positive Municipal Bonds offer higher relative value today Negative Price volatility is here to stay
Download The Long-term Economic Report (.PDF)   PDF


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You should carefully consider the investment objectives, potential risks, management fees, and charges and expenses of the Fund before investing. The Fund's prospectus contains this and other information about the Fund, and should be read carefully before investing. You may obtain a current copy of the Fund's prospectus by calling 1-800-995-2637 or click here to view or download a prospectus online.

Mid, Small and Micro Cap investing involve greater risk not associated with investing in more established companies, such as greater price volatility, business risk, less liquidity and increased competitive threat. Fund holdings and sector weightings are subject to change without notice. Past performance is no guarantee of future results.
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