by Guy Conger
I love reading the New Year stock market predictions made by the wizards of Wall Street, and other financial institution strategists. They are as worthless as my New Year’s resolution (which I make every year) to lose weight. The vast majority of predictions made by the strategists always call for higher markets. A prediction for lower markets does not help their industry or careers so they rarely make that call even when the data points to a lower market. Take a look at the table and you will see my point.
Not a very good track record, yet research departments for every financial institution crank out their predictions every January without fail. This might get them a segment on CNBC but I don’t see how their predictions can help the average investor as they are invariably overly optimistic. I hope to change all that by adding my own predictions to the list. My predictions will be more general than those cranked out by the institutions but they will also be more realistic as a result since I base them on what is likely to happen versus making predictions on what I would like to see happen.
Here is what I predict we will see happen in 2015-
Bonds will be volatile
The end of the Fed’s bond purchasing program and the threat of higher interest rates will bring more volatility as the U.S. economy diverges from those of other developed countries. For some time now, many investors feared that the end of the Fed’s bond-buying program or quantitative easing (QE3) would result in higher interest rates. But since the Fed began tapering its bond purchases earlier this year, bond yields have fallen.
Since the Fed is likely to raise interest rates this year the yield curve on most bonds should continue to flatten.
Equities will be volatile
Since liquidity will be lower in 2015 we will see a volatile equities market but certain sectors like emerging markets and the S&P 500 will still present opportunities for growth as investors continue to search for yield. A major trend I see happening for equities in general is lower returns going forward. We may not see it happen this year but it is obvious equities cannot continue to generate double-digit returns over the next ten years. China’s bumpy down shift from huge exporter to huge consumer will continue to influence global markets. The new world order for oil will also have big ramifications in equities as oil company consolidation accelerates and consumers have more money to spend thanks to lower fuel costs.
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