Contributed by Alan Leist, III
Did the last 12 months of volatility but ultimately flat returns buy stocks and economic fundamentals enough time to set up the next rally? We think so.
A Bridge to Somewhere
2015 was a year that was needed in the markets. The rally from the 2009 bottom was fast and furious. A breather was long overdue.
- As we enter 2016, stocks are now moderately less expensive than last year and therefore better positioned to deliver positive returns in the year ahead.
- The economic backdrop while fragile across the globe appears capable of avoiding recession (the main catalyst for a bear market) and even possibly inflecting higher.
- As the Fed tightens a bit, however, and the economy has its fits and starts, investor sentiment will be tested. As a result, expect a period of market weakness like we saw in August/September ‘15 with the likelihood of a more prolonged but still fleeting slump this time around.
- For patient investors, the payoff should be a nice advance in ‘16 (Prediction S&P 500 +12%) underpinned by earnings growth and less stringent valuations.
Contributed by Doug Walters
With the first rate hike in over nine years in the history books, the focus in the U.S. turns to growth, and whether or not the consumer can provide the necessary shot in the arm. Internationally, the focus is still on recovery, with central banks seemingly poised to do what it takes.
Monetary policy remains center stage:
- What will be the impact of diverging monetary policy between the U.S. and the world?
- Can the U.S. maintain its, arguably frail, growth rate, in the face of tighter monetary policy and all that goes with it?
Similar to 2015, we expect 2016 to be marred by uncertainty; exasperated by Fed rate speculation and continued geopolitical turmoil. In addition we predict:
- U.S. growth is modest, but holds the line above 2%
- Multiple, well-telegraphed, Fed interest rate increases; but the pace will be at the slow end of expectations
- The ECB will surprise to the upside in its monetary response to Europe’s slow recovery
- Chinese growth will continue to deteriorate, while the broader EM space will post positive growth.
Looking Ahead to 2016...
Contributed by Aaron Evans
Road to 1600
Democrats and Republicans will “cull the herd” of presidential hopefuls starting with the Iowa Caucuses (Feb), followed by Super Tuesday (March) and ending with the party national conventions (July).
- Both houses of Congress are also up for grabs in what should make for an exciting year ahead in politics.
In the Tank?
Oil prices continued to slide in 2015, approaching 10 year lows, and they could stay there for the first half of the New Year before moving higher.
- Supply gluts, decreasing demand in China, and the recent signing of the Paris climate agreement are all factors that should weigh on prices early in 2016.
16 Trends/Events for ’16
Pre-IPO Tech Bubble | Rising Rates (Again) | Chinese Phones in U.S. | Leap Year | Batman vs. Superman | Automated Driving | Virtual Reality | Rio Olympics | Generation Z | McPick $2 Menu | Legal Pot Spreads | UK – EU Exit | Obama’s Finale | Global War on ISIS |Drone Regulation | Emoji Marketing
STRATEGIC Asset Allocation
The Trend is a Friend
Economic winds seem set to favor the U.S. stock market relative to international markets for 2016. Although, smaller caps could assume a leadership role, should U.S. de-coupling continue.
Bond Bears Watching
Once again there is chatter predicting a 3% yield on the 10-Year Treasury with the requisite negative returns for fixed income investors. However, it still seems likely that the “bears” will be watching in vain – again.
Futures of Commodities
A stronger U.S. Dollar could continue to impede commodity prices. ETF investors face even stronger head winds due their futures based exposure. We could see an exit from this troubled market.
2015 Stock Spotlight “Healthy Livin’”
Hain Celestial (HAIN, $40.39) owns brands Celestial Seasonings, Dream Milks, Earth’s Best, Health Valley and Imagine Foods. The co. has had a 5-year annual revenue growth rate of a stunning 24%. We believe that the growth in healthy eating will continue to benefit the co. as traditional grocers make more room for organic and issues at big buyer Whole Foods (WFM) ease.
STRATEGIC Equity Income
2015 Stock Spotlight “Trusting a Bank”
BB&T (BBT, $37.81), a North Carolina based bank, has been growing. We are particularly impressed with the growth in no interest fees, like insurance brokerage (19% of revenue) and the bank’s ability to successfully integrate major acquisitions. Rising interest rates are only a minor part of the story. A 2.8% yield growing at 11% annually for the last 5 years is a bonus.
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