2016: Investors See Glimmers of Hope Along a Rocky Path January 1, 2016 | Volume 4.1
I N V E STM EN T P ER S P ECT IV ES AND MARK ET O UTLO O K
Ten Predictions
2015 Recap: A Year of Anxiety and Uncertainty For investors, this past year was difficult, but not disastrous. A weather-induced U.S. economic slowdown kicked off 2015, and headlines declared a possible messy exit by Greece from the eurozone. During the summer, a decelerating Chinese economy led to the surprising devaluation of the yuan. In August, this helped trigger a massive drop in U.S. equity markets. As the fall began, investors grew uneasy over the prospects of Federal Reserve tightening. A late-year meltdown in commodities hurt resource-based industries and economies around the world. Geopolitical crises, terrorism and a bizarre U.S. political backdrop all helped boost uncertainty. The chief headwind for equities was weak corporate earnings. Not surprisingly, the rising U.S. dollar and falling oil prices hurt
the energy, materials and industrials sectors. However, these same factors failed to lift consumer-oriented and other “energyusing” sectors. The key to determining the direction of equities next year may well be the direction of corporate earnings. Despite the negativity and uncertainty, the investing world saw several bright spots in 2015. The U.S. economy grew modestly and unemployment declined significantly. The housing and banking sectors improved. Consumer spending remained strong. The federal deficit fell sharply. And equity markets proved to be resilient, despite downward pressure. Will next year be dominated by the negatives? Will the positives win? Or will confusion and uncertainty continue? With this backdrop, we offer our predictions for 2016.
2016 Ten Predictions
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U.S. real GDP remains below 3% and nominal GDP below 5% for an unprecedented tenth year in a row. U.S. Treasury rates rise for a second year, but high yield spreads fall. S&P 500 earnings make limited headway as consumer spending advances are partially offset by oil, the dollar and wage rates. For the first time in almost 40 years, U.S. equities experience a single-digit percentage change for the second year in a row.
Robert C. Doll, CFA
Stocks outperform bonds for the fifth consecutive year.
Lead Portfolio Manager, Chief Equity Strategist
Non-U.S. equities outperform domestic equities, while non-U.S. fixed income outperforms domestic fixed income. Information technology, financials and telecommunication services outperform energy, materials and utilities. Geopolitics, terrorism and cyberattacks continue to haunt investors but have little market impact. The federal budget deficit rises in dollars and as a percentage of GDP for the first time in seven years. Republicans retain the House and the Senate and capture the White House.
Bob Doll serves as a leading member of the equities investing team for Nuveen Asset Management, providing reasoned analysis through equity portfolio management and ongoing market commentary.
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