by Ronald Delegge
Never mind the S&P 500's (^GSPC) mild nosedive. Wall Street's analysts are still cheerleading stocks for 2014 as if nothing has changed. How bullish are they?
Among Wall Street's analysts, 18 out of 21 predict a 3% or greater increase for the S&P 500 (NYSEARCA:SPY) in 2014 (see table below). One of the most bullish 2014 forecasts is Abby Joseph Cohen of Goldman Sachs who, according to Barron's, predicts a 16% rise in the S&P 500 this year. Her permabull twin is Jeremy Siegel, a professor at Wharton School at The University of Pennsylvania, who expects the Dow Jones Industrial Average (NYSEARCA:DIA) to top 18,000 this year.
Nobody knows how deep the current sell-off in stocks will turn out to be, but that doesn't mean you should let your investment portfolio turn into chopped liver should it escalate further.
-1x inverse ETFs like the ProShares Short S&P 500 ETF (NYSEARCA:SH) offer one way to hedge by delivering daily opposite performance to the S&P. For instance, if the S&P 500 falls 2.5%, SH is designed to increase by 2.5%. Leveraged inverse or short S&P 500 ETFs, like the Direxion Daily S&P 500 Bear 3x Shares (NYSEARCA:SPXS) aim for the same daily goal as SH, but with triple daily leverage.
Consider this: The S&P 500 (NYSEARCA:SPXL) has now recorded five straight yearly gains and nine positive yearly gains out of the past 10 years. To say that stocks are overdue for a rough stretch is an understatement. It's never been a matter of if, but when.
Furthermore, the 105% gain over the past five years for the S&P (NYSEARCA:VOO) has occurred on the back of easy money policies (QE or quantitative easing) from the Federal Reserve. Although QE remains in place, the Fed is slowly retracting the velocity of QE by reducing the amount of monthly liquidity. This has already changed equity market's dynamic, as bleeding emerging markets (NYSEARCA:EEM) well illustrate. Since early Dec. 2013, Chinese stocks (NYSEARCA:FXI) have been clobbered 14%, while Brazilian stocks have lost almost 15%.
Disclosure: No positions