January has been a gut-wrenching month for the stock market with the many factors and events affecting the directions markets took. Some top things emerged as the primary determinants of the prices in the market. China’s economic slowdown, the collapse of oil prices and the strengthening dollar are some of the major determinants. The S&P index performed dismally with poor results comparable to the same month during the 2009 financial crisis.
With these poor performances in the major stock markets around the world, financial experts are warning for tough times ahead in the year 2016. Nonetheless, significant moves present opportunities enabling investors to predict the markets. It is advisable to add your current stock positions with the prices low and diversify your portfolio to reduce your overall risks. It is a near-perfect time to buy more with the prices low to profit in the long-term when prices rise again.
Here are more details of the 7 things investors should watch for in 2016:
1. Oil Prices
The plunging of crude oil prices has sparked fear and uncertainties among most investors with the majority believing a global recession will arise. Due to the lower demand and higher supply of crude oil, the prices fell sharply resulting in financial deficits in almost all oil producing and exporting countries. It is still uncertain of where the prices of oil will head to with some of the OPEC members declining the appeal to freeze output at January levels.
If investors want to invest in the uncertain energy stock markets, they should make small purchases at intervals regardless of current prices at that moment to reduce risks of massive losses. Financial experts, however, warn investors not to rush into buying the energy stocks since a majority of the markets with relative-bottom prices may experience steep declines before gaining.
2. China’s Economic Slowdown
Since China is the second-largest economy in the world, it is hard to find stock markets that are not affected by China news. Nonetheless, small- and mid-cap stocks are mildly affected while the big multinationals with a significant presence in Asia experiencing great effects.
3. The corporate profits recession
Though the corporate profit reports are affecting markets, the low oil prices and China’s slow economic growth rate have taken center-stage in the markets. The corporates earnings for the year 2015 show dismal performances, and the stronger dollar has made US goods lesser competitive in overseas markets. Nonetheless, investors should not worry about these negative reports since they were majorly affected by the energy stock prices that fell by over 60%. In fact, experts say that the reports for the year 2016 could show double-digit gains once the prices of oil are stabilized.
4. Volatility and shifting sentiment
Recently, with the sharp fall in oil prices, the markets have been quite volatile influencing people to make hasty trading that may result in losses. Experts advice that you should be ready to commit to your selected for up to five years to avoid being tempted to make uninformed decisions when the markets are consistently volatile.
If you want a more conservative strategy, you can opt for blue-chip shares that pay dividends and are dominant in the markets. These blue-chip stocks tend to be less volatile enabling you to make well thought and researched decisions.
5. Long-term macroeconomic trends
Though the daily news is affecting the prices in the stock markets, long-term trends are also affecting the markets since investors are turning to these long-term trends to find solace in the dwindling markets. The services-focused stocks in the continuing US transition-economy show potential for significant gains in the long-term. The consumer sector has emerged to be a strength area in the US economy. Moreover, there are two popular ETFs among the investors that held approximately a fourth of their portfolios in the consumer sector investing in less volatile securities.
6. The U.S. Presidential election
Investors do not like any uncertainty that will affect the markets. Since the election of a new leader presents uncertain outcomes, the stock markets always have a weak year during an election year regardless of the country where the polls are being conducted. It is evident that since the World War II, the stock market prices have declined by approximately 1.4% in the eighth year of all presidential terms.
Nonetheless, you should maintain your ground in your investment portfolio since the first year of a new president term the markets gain by over 6% and approximately 10% for a president’s second term. However, the hypothesis will be validated to be viable only when the democrats and republicans choose their sole candidates.
7. The Federal Reserve and interest rates
The past three years have witnessed a response in the markets once the Fed Reserve hinted of an interest rate hike since the 2008-09 financial crisis. Nonetheless, with a modest 0.25% short-term hike in December, it is almost sure that there will be no more hiking in 2016. The slowing of the US economic growth and sharp declines in oil prices have also caused the stocks to drop steeply.
If the rates are hiked, the stocks will gain because it would restrain the further strengthening of the dollar hence favoring US exports. If the dollar continues with its recent consistent gains, it will exert pressure on oil prices and reduce the demand for stocks.
