The 2015 market year has now ended with a whimper, and it is off to a very poor start in 2016. This does not diminish the fact that the market has gone from about 660 to over 2,200 over the last six plus years, however. The bears have been wrong since 2009.
Over the years, many pundits have been predicting that gold will hit $5,000 per ounce, inflation will rear its ugly head, and the U.S. dollar will crash. They have been wrong. They eventually may be right, but their doom and gloom prophecies have cost their follower a lot lost opportunity during the almost seven year old bull.
My weekly newsletter stated in March of 2009, that a new bull market had been born. I have not deviated from that bullish stance ever since. I continue to be fairly bullish about the market as we turn the page on a new year.
My numbers currently show a return to growth in earnings for the S&P 500 in 2016, after a flat year in 2015. I will obviously continue to monitor and update those numbers on a weekly basis, but as of now we could see about 8% growth in S&P 500 this year vs. last year.
As of now, I foresee 8-11% upside potential in the S&P for this year. This is the best upside that I have seen in quite some time. I know that we are off to a bad start so far, but when I take a bigger look at the market vs. just the last few days, I remain bullish.
I see several dominant theme in the market that investors should keep in mind as they construct their portfolios for this year.
THEME 1.LOW OIL PRICES.Who would have guessed that West Texas Intermediate Crude would have plunged from $107 per barrel to $37 per barrel in the space of eighteen months?
I was fortunate to spot this developing trend in August of 2014. I did not ride the energy sector down some 70%.Instead, I sold what energy holdings that I had. I would continue to completely avoid the energy sector for now. At some point we may finally get a buying opportunity, but I think that is still way too early for that.
Low oil prices will continue to be a VERY BIG theme to play in 2016. Nobody knows if oil has hit bottom yet, but it would seem to be a fair assumption that prices will remain depressed for quite some time.
So what sectors benefit from low oil prices? How about cruise ship stocks? I currently own three. Look at what Royal Caribbean Cruises Ltd (N:RCL) has done while oil has been plunging.
The biggest expense that airlines have is fuel prices. Alaska Air Group Inc (N:ALK) has been a good stock over the years. It only gets better for them with low fuel prices.
With the money you save at the gas pump, how about picking up a nice Monster Beverage 1990 Corp (O:MNST) to help you get though the rest of the day?
THEME 2-ONLINE SHOPPING.The traditional mall is in big trouble. Convenience, selection, and comfort have all helped cause an explosion in online shopping. This trend is only going to get stronger over time.
Bricks and mortar stores are dropping like flies. Here are a few that are in big trouble. I would not want to be Macy`s Inc (N:M) right now:
JC Penney Company Inc Holding (N:JCP) remains in survival mode.
Even venerable old Wal-Mart (N:WMT) is struggling.
I can remember when Nordstrom's (N:JWN) was THE PLACE…
Now it too is struggling.
Meanwhile, shoppers are performing shopping searches on Alphabet Inc (O:GOOGL)…
And then buying on Amazon.com Inc (O:AMZN)…
THEME 3-RISING INTEREST RATES.The asset allocators are in trouble. I believe that the Bond Market is now in the early innings of a long BEAR MARKET. I don’t believe that interest rates are going to scream higher, but the FED has now finally hiked rates for the first time in ten years. They have also warned that more hikes are on the way.
Bonds are obviously the most vulnerable asset class. It will first show up in junk bond arena.
The above chart is not a good one. It could get a whole lot worse. Over the long haul, “normal” interest rates have been more in the 4%-6% range. We have a long ways to go before we get back to “normal.”
Regular bond funds are looking very “top-heavy” to me. You do what you want to do, but I see a BEAR MARKET in bonds forming. I am going to get off of the railroad tracks.
What does well in a Rising Rate environment? Banks…
Financials…
And INVERSEbond funds…
THEME 4-A STRONG DOLLAR AND VERY LOW INFLATION.We begin a new year with a strong U.S. dollar and a very low inflation rate.
This continues to be bad for multi-nationals like Caterpillar Inc (N:CAT)
And Cummins Inc (N:CMI)…
And Emerging Markets…
And commodities…
Who benefits from a strong dollar?
Importers of cheap foreign goods…
And users of cheap commodities…
THEME #5-MORE VOLATILITY.TERROR ATTACKS AND TERROR THREATS.A CONTENTIOUS PRESIDENTIAL CAMPAIGN.MORE ACTION BY THE FED.AND MORE INSTABILITY IN THE ENERGY MARKET.
This past year was a year of volatility. Expect more in 2016. Who knows where this election year will take us. Volatility will continue to be a way of life in the market. A focus on earnings will help investors get through it.
Who benefits from volatility? Discount brokers and the makers of Rolaids™. Who suffers from volatility? Jumpy and nervous investors.
These are the themes that I believe are most playable as we begin a new year. When things change, I will let you know. The perma-bears remain bearish. They have been wrong for almost seven years. Eventually they will be right, but even a broken clock is right twice per day.
The gold bugs will continue to predict a collapsing dollar, runaway inflation, and $5,000 gold. The problem is that they have been saying the same thing for the last seven years. They probably will be right eventually, but in the meantime, they continue to go clobbered.
The bull market will turn seven years old on March 9th of this year. If indeed earnings of the S&P 500 can return to growth this year, then the bull should remain intact. I obviously will be watching those earning very closely on a weekly basis, but for now I enter my seventh year as bull on U.S. stocks.