Putnam Perspective - Choppy market May dominate in 2014

My outlook for the US equity markets remains positive, although somewhat less so than a year ago. The key story seems to be the maturing of the business cycle, in that we've gone from the first part of the upturn, which saw pretty slow growth, frustratingly slow at times... Although I would characterize that as a good thing. Because what it resulted in was a longer cycle and that it's taken a longer period of time to build up the excesses that you usually see at the end of a cycle. So we've shifted now from that first part of the upturn to what looks like the beginning of the second part of the upturn, a point in which you usually see accelerating growth, accelerating GDP growth, accelerating earnings growth, although usually somewhat choppier equity market. Because you start to see some of these concerns creep in around inflation and interest rates. And so, while we feel pretty good about those right now, we think we're entering that second part of the cycle. And as you put the total return scenario together, it looks like we'll see high-single-digit type earnings growth in 2014, combined with some dividend and stock buyback activity, for an extra few percentage points of return. And the price-to-earnings multiples look to be about fair, at these mid-teens levels, which should stay about the same or maybe even expand a little bit. And so, from a total return perspective, it looks like a base case of about a low-double-digit return for 2014, which is still pretty good. But I would stress that, with a lower-return environment, you end up with much more of the importance being on the excess-return part of the equation.