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Business/Finance See other Business/Finance Articles Title: What a Lackluster 2015 Says About Market Prospects for 2016 What a Lackluster 2015 Says About Market Prospects for 2016 Mike Larson | Monday, December 28, 2015 at 4:20 pm Can you believe 2015 is almost over? It seems like only yesterday we were ringing in the year. Now, we’re about to watch the ball drop in Times Square again, and close the books on it. Sadly for Wall Street, it hasn’t been much of a year to celebrate. The Nasdaq Composite has managed to rack up a few percentage points worth of gains. But the Dow Jones Industrial Average and Standard & Poor’s 500 Index have barely budged. The Dow Jones Transportation and Dow Jones Utility Index have gotten pasted. And the Russell 2000 has struggled for several months now. Why such a lackluster year? And what does that say about the prospects for 2016? I believe the big turn in the credit cycle, the global economic slowdown, and the ongoing woes in commodities are at the heart of the stock market’s struggles. Throw in a less-friendly Federal Reserve, and divergent central bank policy overseas, and you have a recipe for lousy performance. The markets have confounded many observers and participants in 2015. Think about it: Investors grew fat and happy beginning in 2009. They could always count on free, easy money from central bankers worldwide to artificially prop up asset prices. They could count on synchronized global economic expansions to give corporate earnings a nice tailwind. And they didn’t have to worry about credit market turmoil because lenders were throwing money around like crazy. But those very factors also laid the groundwork for the cycle turn we’re witnessing now. Too much money flowed into the energy and materials sectors to finance the commodity “supercycle.” But the dramatic economic slowdowns in Asia, South America and parts of Europe are torpedoing demand and pricing. So investors are growing increasingly worried about a huge wave of defaults, and that worry is being priced into the credit markets. Too much money was loaned out to too many auto loan and student loan borrowers. But now investors are growing increasingly nervous about the debt burdens those loans have left Americans with, and the prospect for rising defaults down the road. Too much money also flowed into corporate America and yield-chasing mutual funds and ETFs during the boom years. That financed record amounts of M&A, stock buybacks, and junk bond issuance. But now investors are getting more worried about the negative impact on corporate balance sheets. So they’re selling aggressively and sending credit markets into a tizzy. My belief (and fear) is that this process is nowhere near played out. After all, we had an epic boom/bubble in many assets and investment classes over the last seven years thanks to the massive influx of easy money. To think that would all unwind in just a few months seems naïve. “This cycle seems to be following the eerie pattern of the early 2000s.” If anything, this cycle seems to be following the eerie pattern of the early 2000s. That’s when we got a massive influx of easy money designed to combat the dot-com bust … and ended up with the biggest bubble ever in housing and mortgages (and related stocks). That bubble began to deflate in late-2005, but didn’t finish doing so until 2009. Bottom line: Enjoy your New Year’s celebration. Open a bottle of champagne if you like, and blow as loud as you can on those noisemakers. But keep the struggles of 2015 in mind — and realize that many of the forces that helped hold markets back this year are still going to be with us in 2016. Do you think my outlook is overly pessimistic? Or dead-on realistic? What do you believe held markets back in 2015, and what do you think will hinder (or help) stocks in 2016? Any economic or fundamental forces I overlooked, or that you believe investors need to take into account in the year ahead? Hit up the comment section below and let me hear about it. Poster Comment: It appears that the same occurrences that happened in 1929 are happening again. If this is so, we could be in for a depression. People will lose their jobs and there just might be soup lines again. It will be worse if there are riots for food and other necessities. People are generally not nice, especially in urban areas. Post Comment Private Reply Ignore Thread
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