Will 2014, as many observers believe, once again be dominated by equity bulls and bond bears? As the Federal Reserve gradually moves towards phasing out quantitative easing – possibly by the end of the year – and the focus begins to turn to the possibility of a rise in interest rates, volatility across asset classes looks likely to rise. "For risk markets, the higher volatility on ‘safe haven’ bonds and less concern over the inflation outlook should continue to help the flow of money into equities," says Divyang Shah, global strategist at IFR Markets. "2013 has seen record highs on the S&P 500 and Dax and the tail-end of the year also witnessed the Nikkei 225 breaking through 16,000 to the highest level since October 2008. Yen weakness has certainly helped and with the Bank of Japan likely to deliver a further burst of quantitative easing in April, the trends of higher Nikkei and dollar/yen should continue." Analysts at JPMorgan predict that the S&P 500 index will rise to 2,075 by the end of the year from its current level of 1,848. "2014 will represent the sixth year of the US equity bull market which began in March 2009 and is progressing like a ‘classic’ secular bull market," JPMorgan says. "Historically, by looking at previous equity market cycles, the sixth year of a bull market has been very strong, which is why we see another very strong gain in 2014." Much will depend, of course, on how well the US economy holds up. The Fed’s decision to begin scaling back its monthly asset purchases came amid increasing evidence of improvement in the US labour market – although the central bank sweetened the pill by indicating that interest rates will be kept near zero "well past" the time when unemployment falls to 6.5 per cent. "The timing of the first fed funds hike is uncertain, but our baseline forecast remains mid-2015," say analysts at Barclays. "Inflation remains well below the Fed, European Central Bank and Bank of Japan objectives, implying highly expansive monetary conditions and the potential for further easing by the latter." Julian Jessop at Capital Economics says the purely economic case for more monetary stimulus in Japan, on top of that already planned, may not become clear until the second half of 2014. "Whatever the precise timing of the next major policy announcement, the Bank of Japan’s clear easing bias should maintain the downward pressure on the yen and provide further support for asset prices, including equities and Japanese government bonds," he says. In the eurozone, meanwhile, concerns over the region’s debt crisis faded in 2013, largely in response to European Central Bank policy. But severe divergences in economic performance across the region remain, and are likely to pose significant challenges to the central bank in 2014, analysts say. "The ECB has remained the firefighter but is quickly running out of options," says Natascha Gewaltig at Action Economics. "Lending continues to contract, and 2014 will bring the ECB’s asset quality review and stress tests, which will put further pressure on banks and could limit lending again."