Although I am not publishing a formal annual outlook this year, I have made a number of smaller forecasts in the media over the last few weeks, which I am collecting in blogs for your interest.
S&P and Fed Outlook for Nikkei News of Japan
I think the Fed will raise rates in December 2015 and Three times in 2016 (March, June and December, skipping September to stay away from the Presidential election campaign).
Historically, stocks have done well after the Fed has started raising interest rates which is a sign of an improving economy. I think USD may come back down a bit in 2016 which also may help the earnings of US companies. For 2016 I think the S&P can rally 12% from current levels, which is 1.5 times the 8% long-term average return for US stocks to approximately 2,285.
Canada outlook for Investing.com
Heading into 2016, the outlook for the Canadian economy and markets remains dependent on what happens with oil and gas prices. The negative impact of the oil price crash was the main story for Canada in 2015 sending the Alberta economy into a tailspin following the loss of many high-paying oilpatch jobs.
The oil price plunge also dragged down the loonie, however, which can have positive effects on the economy over the longer term, some of which may emerge more clearly in 2016. For example, in 2015, the lower CAD had a positive impact on film and TV production, and in time can benefit many sectors including manufacturing and export, tourism and retailing.
If the oil price stabilizes and rebounds, we could also see CAD and Canadian energy stocks rebound from depressed levels. Rebounds are likely to be limited though so any outperformance may be short lived, unless signs of real effort from energy producing countries to stabilize the market emerge.
Based on this although we could see stronger performances some days, overall, I think Canadian indices will underperform their US counterparts in 2016. The US economy has been doing well lately and a rising tide of global equities could lift Canada as well but at a smaller pace. On the other hand, a downturn by global markets could impact vulnerable Canadian stocks.
Despite recent talk of negative interest rates and QE, the Bank of Canada appears unlikely to bring in more stimulus unless things really go off the rails or oil falls further. Allowing CAD to float freely and fall with the oil prices can do a lot of the central bank’s work for it.
Canada outlook for Reuters
12,850 (midpoint of a 12,700-13,000 trading range, I think 12,700 the August low will hold – iots the 62% retracement of the 2011-2014 bull market if that fails look out below!)
13,840 38% retracement of the decline from a year ago to now. I think overall stock markets around the world will do better in the first half of 2016 as economies in the US Japan and Europe improve.
13,500 (I think the TSX could struggle in the second half unless things improve for the oil price)
Upside and downside drivers:
Surprise Saudis come to their senses and cut production to stabilize the oil market and WTI pops helping the energy sector to recover (fat chance)
Stocks rally after the Fed and Bank of England finally start raising interest rates.
Oil producers war intensifies, WTI takes out $35 and heads lower, this could crush energy stocks. If oil breaks $35 it could head for $25 but probably would not stay there very long.
The benefits of the lower loonie take longer to kick in and Canada falls into a recession
Property market starts to crumble potentially impacting banks and REITs with their high exposure to Canada real estate.
Overseas markets fail to rebound or China slows even more impacting metal prices and metal stocks.
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