Stock market predictions can be fun. This time of year, seemingly every analyst under the sun gets in on the act. I’ve resisted for years for that very reason … plus the fact that no one, analyst or otherwise, truly knows what’s going to happen next in the stock market.
But, what the heck?
So let’s get right to it—with a bit of a twist. Instead of just listing my five market predictions for next year, I’m going to list five common predictions you’re likely to read—or have already read—that I believe will be WRONG. Being somewhat of a contrarian, I believe the opposite of what these common 2016 predictions foretell.
2016 Stock Market Prediction #1: Stocks won’t rise at least 10%.
The S&P 500 is basically flat over the last 12 months. That has many analysts believe the malaise will continue. But it’s precisely why I think 2016 will be much different.
Eight times since 1950 the benchmark index has moved less than 5% in either direction in a given calendar year; all eight times, the index was up by double-digits the next year. In fact, the smallest annual return the year after a relatively flat year came in 2012, when the S&P rose 13% on the heels of a flat 2011.
Eight out of eight times is a pretty good trend. Even if nothing else suggests that stocks will rise by double digits next year, history is strongly on the side of the bulls in 2016.
2016 Stock Market Prediction #2: Apple (AAPL) won’t bounce back.
The sight of the world’s largest company stumbling to a 5% decline in a year is as rare as spotting a snow leopard. Or was it the beginning of a disturbing new trend for Tim Cook’s iPhone factory? Tim Lutts, my boss and Cabot’s Chief Investing Strategist and President, thinks so.
In a July article titled, “Sell Apple,” Tim wrote that AAPL has reached “peak popularity” among investors, meaning there aren’t many people left who don’t already own Apple stock. He speculated that Apple could become the next IBM or Microsoft—once-great stocks that flat-lined once investors sentiment turned.
I don’t disagree. But I think that’s more of a long-term view of Apple. In the short-term, I think AAPL will bounce back from a down year in 2016. Though the stock may have peaked, AAPL has been so dominant for so long that the myriad AAPL bulls won’t go down without a fight.
2016 Stock Market Prediction #3: Energy prices will rise.
Crude oil prices have been in free-fall for 18 months now, and are on the cusp of hitting decade lows. That’s a long, powerful trend to reverse. Bargain hunters insist energy stocks are a buy at such dirt-cheap levels. But I’m not convinced oil has hit rock bottom yet.
I bet it will at some point in 2016. But I’m not sure prices will rise enough to convince the institutions it’s time to jump back in the energy pool. In other words, don’t go loading up on energy stocks just yet.
2016 Stock Market Prediction #4: The Presidential Election will wreak havoc on the market.
Presidential elections always make for high intrigue on Wall Street. When you throw figures as polarizing as Hillary Clinton, Ted Cruz and especially Donald Trump into the mix, and investors’ interest in the election outcome—and how it might affect their portfolios—could reach unprecedented heights.
In 2012, the S&P slipped 3.5% in the six weeks leading up to the election. They continued to plummet in the two weeks that followed President Obama’s re-election, but they eventually bounced back, recovering most of those losses by year’s end.
It’s the uncertainty that causes investors to panic and sell out of certain positions. Once the election is over, no matter who is elected (okay, Trump could be a whole different animal), panic subsides and people start buying stocks again.
2016 Stock Market Prediction #5: Fed rate hikes will continue to rattle the markets.
Now that the Federal Reserve has finally, mercifully, raised short-term interest rates for the first time in seven years, the whole “will they or won’t they” routine on Wall Street can cease. They have finally raised the rates; the market didn’t crash as a result (it’s actually up a tad), and they will continue to raise rates in 2016.
The Fed will raise the rates slowly, by only a quarter of a percentage point at a time, perhaps once every few months. By year’s end, the federal funds rate could be as high as 1%. Or not. Regardless, investors won’t care nearly as much about the Fed’s every move as they have the last few years.
Fears that higher interest rates would cause the market to crater will prove overblown. And by year’s end, everybody will forget why they were so worked up about it.
