Burned badly by the stock meltdown of 2009, many mom-and-pop investors swore off the markets completely.
They wound up missing a magical rebound that has taken the Dow Jones Industrial Average and Standard & Poor's 500 to new highs and the Nasdaq roaring back above 4,000 for the first time in 13 years. Meanwhile, investors hunkered in the "safety" of bonds or U.S. Treasury notes or gold lost out in 2013.
Will the stock party continue this year? Are we due for a sharp correction — or worse? Here are predictions from a trio of local market watchers, including one who famously predicted a market crash — a crash that, he contends, still could come as soon as this year.
Harry S. Dent Jr.
President and founder of HS Dent in Tampa
2013 was supposed to be the year it all collapsed. Back in 2011, Dent came out with a book called The Great Crash Ahead, which predicted not one but two significant freefalls in the stock market.
The most likely scenario, the prognosticator wrote, was for the Dow to peak near 13,000 by early 2012 before falling to about 9,600 by mid 2012. Then, after a mild bounce into the presidential election would come a steeper drop around late 2013 pushing the Dow below 7,000. His worst-case scenario: the Dow falling as low as 3,500.
Instead, the Federal Reserve kept stimulating the economy and the markets kept surging. The Dow is now hovering close to 16,500.
Dent is unrepentant, even as he acknowledges the critical reaction to his advice. "I know people think I'm a nut. I've got no delusions about that," he said.
Dent says it was just his timing that was wrong. He has shoved back his forecast for the day of reckoning several times, saying the Federal Reserve's unprecedented bond-buying program artificially propped up stocks.
Given the Fed's plans to slow down bond purchases, Dent now sees the markets continuing to rise in early 2014, with the Dow reaching as high as 17,000 by March.
After that, though, look out.
The deflationary mix of aging baby boomers pulling money out of the markets, a smaller labor pool putting money into stocks and the end of Fed stimulus will be devastating, he forecasts, with the Dow plummeting as low as 5,000 by 2016.
"This is an extreme boom and bubble — more extreme than the roaring '20s," he said. "I don't know how people are looking at the same material I'm looking at and saying this isn't a bubble."
Already, he said, the Fed is starting to lose control, as interest rates rose even before it began tapering its bond buying. "If they stop this stimulus, this economy is dead within six months."
Put your money in high-quality bonds. And invest in the U.S. dollar, at least until deflation takes hold. Otherwise, stay out of debt and stay out of the way.
Gold isn't the safe haven some make it out to be, even after it fell sharply last year. "Gold may be one of the last bubbles, but it will burst. It will fall to $700 in 2014 and drop as low as $250 a decade from now."
Chief investment officer for SIPCO in Tampa
McIntosh had anticipated a 15 percent gain in the markets in 2013, with the markets struggling in the second half of the year. He hadn't bargained on an even greater surge, thanks to the Fed continuing the same level of bond buying throughout the year.
If job growth continues and the Fed gradually tapers its bond purchases early this year, that's when the markets will feel it.
"We think the taper will taper the market," he said. "Interest rates will head up … and the market will struggle through the first half of the year. We haven't had a 10 percent correction in the markets in two years. I think we're due."
McIntosh sees a correction, however, as a buying opportunity and not a reason to pull out of stocks.
Eventually, the markets will rebound and end the year up 5 to 10 percent, he predicts. That would put the Standard & Poor's 500 at about 1,900 by year-end.
Looking ahead, he sees the economy continuing its slow growth rate of 2.5 to 3 percent over the next five years, with no major worries surfacing until the 2020s.
An improving economy is already having an effect on government coffers. "I think the deficit is coming down pretty fast right now, faster than people expect."
Many stocks in the real estate and financial sectors have already enjoyed a run-up in the past year and will probably take a rest.
For 2014, he's steering clients into the energy sector, citing potential for deep-water drillers like Transocean Ltd. and Diamond Offshore Drilling Inc.
On the bond side, he's keen on corporate bonds because some corporations have put themselves in fantastic shape with cash strongholds and low default rates.
President and CEO of ProVise Management Group LLC in Clearwater
Ferrara is encouraged that the economy, particularly in the last part of 2013, has proved to be healthier than everyone thought. Even the government shutdown for a couple of weeks in October couldn't knock it off track.
"But we've got to remember there is a difference between the economy and the stock market," he said. "This (past) year was not the year of the economy; it was the year of the stock market. This next year could be the year of the economy but not the market. … The two don't always walk in lockstep."
The lesson of 2013 was a simple one: Don't fight the Fed.
Like others, he didn't anticipate the Fed bond buying continuing at the same level for so long. But with tapering now starting, it's time for corporate America to pick up the slack.
"At this point, we need to see the companies increasing their earnings to support the stock market," he said.
He sees some market volatility early on and possibly a mild correction.
If the mild recovery in the overall economy continues, Ferrara forecasts the markets ending the year up 10 to 12 percent.
"Great years are generally followed by good years. The emphasis has to be on the word 'generally,' " he said, with some trepidation.
"After doing this 40-some years, one thing I've learned is the market always fools you."
"Just be patient."
If you're in the market now, stay there unless something fundamentally changes. Barring a major global event, the odds are that earnings will be higher at this point next year.
If you're not in, don't jump in with both feet. Ease your way in using dollar-cost averaging, a common investing method in which one invests the same amount over specific time periods, such as $1,000 a month over 12 months.
Some markets with stable democracies are in the early stages of economic recovery.
"Over the next three to five years, places like Australia will do well."
Avoid companies with large amounts of debt, as those countries morph back to higher interest rates.
Don't get out of bonds entirely, but avoid those that will take a long time to mature, so you're not caught if long-term interest rates jump too high too fast.
"It's all about the fundamentals. It's all about the blocking and tackling in the coming year," he said. "When you come off such a great year, you have to realize that catching a cold is not a long-term problem."
Jeff Harrington can be reached at (727) 893-8242 or firstname.lastname@example.org.