USA Today -- NEW YORK The stock market, up about 25% and on track for its biggest gain in 10 years, has put up championship-like numbers this year. But stocks are no longer cheap. And although there are still a lot of bullish pieces in place that could propel stocks higher in 2014, Wall Street's ability to deliver a "two-peat," or back-to-back years of 20% gains, is far from a slam dunk, say top investment strategists and portfolio managers who took part in USA TODAY's 18th annual Investment Roundtable.
The five panelists painted a generally bullish outlook for stocks in the new year. But expecting another historic year might be asking too much.
"The stock returns in 2014 will be positive, but less than what we've seen over the past couple of years," says Savita Subramanian, head of U.S. equity and quantitative strategy at Bank of America Merrill Lynch. Her year-end 2014 target for the Standard & Poor's 500 index is 2000, roughly 13% above Friday's close.
Still, tailwinds are plentiful. The economy is improving. Stock prices are neither dirt cheap nor super-expensive. Investor sentiment is far from irrationally exuberant. And the "Great Rotation," or the shifting of cash out of bonds and back into stocks, still has legs.
"The three big things that drive stocks -- fundamentals, valuation and sentiment -- still tell a pretty good story," says Nick Thakore, portfolio manager of Putnam Voyager Fund.
But fresh headwinds await. The Federal Reserve is expected to start dialing back soon on its market-friendly bond-buying stimulus program. Interest rates are expected to move higher due to less Fed support and a better economy. And the stock market is exhibiting pockets of froth.
A newer risk is if U.S. economic growth picks up too fast, says Russ Koesterich, global chief investment strategist at BlackRock.
"That may not be so bullish for stocks, as markets will likely have to adjust to a more dramatic rise in rates and less accommodation from the Fed," says Koesterich, adding that foreign stocks offer opportunity next year.
What's more, the market hasn't suffered a 10% correction in more than two years and might be due for one.
"As a tech investor that lived through 2000, the lesson is: you are always vulnerable to a correction," says Kevin Landis, CEO and portfolio manager of Firsthand Technology Value Fund. He says the next hot investing trend could be "wearable" tech.
Hedge fund manager Larry Robbins, CEO and portfolio manager at Glenview Capital Management, is upbeat on stocks. He says investors are finally shifting their focus away from worries about the health of the financial system. They are back to identifying stocks with upside potential based on business fundamentals.
A big driver going forward, Robbins says, will be U.S. corporations putting billions of dollars, now sitting idle on balance sheets, back to work via share buybacks, acquisitions and other investments. "Companies have been hoarding capital, which is the same as signing LeBron James to an NBA contract and putting him on the bench," says Robbins, who is bullish on hospital stocks. "They have had this great asset -- cash -- sitting on the bench and it has not been earning points for their team."
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