As we round out of October, we are looking ahead and assessing our forecast for the 2015 year-end, as well as our expectations for one year and three years out. Here’s the market performance that we at Camarda Wealth see on—and over!—the horizon. An increasingly tumultuous summer lead to a bruising late August, which brought an 11% decline, but in autumn’s aftermath, the sun appears to be glimmering through those proverbial clouds of uncertainty. Many analysts on Wall Street—joined by yours truly, here at Camarda Wealth—feel that we’ve lived through a normal correction within the longer-term bull market that began in 2009. This correction is still showing resilient, persistent, and upward thrusting horns, which we expect to stretch a few more years—or possibly much longer—as the U.S. and the world continues to recover from the once-in-a-century economic upheaval of 2008.
With dented sectors like Energy and Financials presenting very attractive valuations, the upside in a typically bullish season appears to be clear.
The consensus on the street seems to be calling for a low-to-middle single digit year-end push from current levels, to finish the year with modest but positive gains. This should expand upwards to high single digits to low double digits, on the high end, by the end of the second quarter next year. In other words, we may rise as far as 15% between now and April 1st. Economic data, for the U.S., continues to be relatively strong (e.g. employment, consumer sentiment and purchasing power, housing, etc.), and with global stocks’ volatility dropping over the past several weeks, this may also signal a strong opportunity for dividend-paying blue chips to rise sharply from current levels. Barron’s, for instance, has been heralding for several weeks that this will be a time for the “so-called” value stocks—like those with strong dividend yields—to shine. With broad expectations that the Fed will now most likely hold off a rate hike until after its December meeting, the pass on interest rate increases should help to keep the U.S. dollar’s ascent in check. This will provide some “breathing room” for the much bruised multinationals—like Caterpillar and Johnson & Johnson—who have seen their sales sink in many foreign markets since the rising dollar has made their goods far more expensive and less competitive overseas.
In addition to this, it appears much fear has been factored into the current market. Fear is already leaving an over-bearish sentiment, which usually provides contrarian momentum (this refers to the fact that when the overall consensus is either bullish or bearish, there is no more room to move in that direction and the opposite trend ensues). In other words, when fear seems to trump greed in popular sentiment, this is often a bullish sign for stocks; this has been confirmed by several recent upward jolts in bullish volume on the New York Stock Exchange Composite Index, which bodes well for the rest of the year into 2016.
While there is clearly more concern and instability overseas on a long-term basis, these markets seem to be better values than the U.S., but the timing may be challenging and may take much more time to realize their potential. For now, however, expect the best performance from U.S. stocks. Finally, bonds are on the list of concerns, which have flourished over the last 30 years as interest rates plunged, but with rate hike’s imminent look for the biggest losses (in foreign bonds, U.S. Treasuries and Corporates) will begin over the next 12 months and beyond.
In finishing, we are bullish on stocks for the rest of this year and through 2016. Beyond this, we continue to believe that stocks are in a very long-term (“secular”), upward trend, which may last well into the 2020’s and possibly beyond. Many analysts expect an average of 9% annual gains over the next few years in equities, and we agree this is a reasonable estimate. As the recent correction illustrated—driven by the global weakness scare and surprises like the China currency devaluation—the market (even when in a long-term growth trend) does not go straight up. The wise investor does well to take the long rear view look, in mind, and avoid knee-jerk reactions to unpleasant (and inevitable) bumps on the long-term road to prosperity. While, in time, another severe bear market will surely come, we believe that time is—at this point—far over the horizon.