Navigating The Road Ahead: 6 Investment Themes For 2016
In the dynamic and ever-changing global capital markets, investment opportunities are everywhere. The key is to identify and capture them.
Horizon’s investment team has identified six themes that we believe will have a significant impact on the financial markets in 2016. Financial advisors and their clients will want to keep their eyes on these factors:
1. Global Central Bank Policy. 2016 will see a large divergence between the policies of the major central banks around the globe. While the U.S. has finally begun tightening its monetary policy due to signs of improving domestic economic conditions (with the U.K. likely not far behind), Europe and Japan are actively easing in order to stimulate growth. In particular, the speed and frequency of the U.S. rate hike schedule have the potential to impact the global markets.
2. Oil Prices. The price of oil plummeted by 30% last year, and has fallen by 62% over the past two years. Production growth for both OPEC and non-OPEC members has thrown the oil market out of balance, resulting in a global oversupply of crude. The variety of ways that oil can impact other markets (via inflation and capital expenditure to name a few) makes its price path one of the most influential factors for 2016.
3. The U.S. Presidential Election. Stock prices tend to rise during presidential election years, with U.S. equity markets averaging a return of 8% during the fourth year of a presidential term. Although we expect that stocks will generate positive returns in 2016, we also believe there will be market volatility due to increased uncertainty as we get closer to Election Day.
4. Economic Growth in China. China’s transformation from a manufacturing-driven economy to a consumer-driven economy is not fully appreciated by the markets. As such, markets are apprehensive about Chinese industrial and manufacturing data that is lower relative to historic norms, despite the country’s improving consumer data. Therefore, until markets fully grasp this conversion, the deceleration in China’s growth will continue to have an impact on the price of commodities and global markets in general. Indeed, the first trading day of 2016 saw a massive sell-off in Chinese stocks due to signs of economic weakness in that country. The sell-off led to losses across global capital markets.
5. U.S. Inflation and Wage Growth. Inflation—and, more important, inflationexpectations—could be the primary guides for how quickly the Fed will raise interest rates. Despite recent deflationary pressures stemming from lower commodity prices and fears of a stalling economy, an increase in wage growth could provide encouraging signs that inflation will rise higher or faster than expectations (which were depressed for much of 2015).
6. U.S. Dollar Strength. The dollar gained 9.3% in 2015 relative to other major currencies overall, and looks to continue that momentum this year. Further appreciation in the U.S. dollar could be a drag on U.S. multinational corporations, as a rising dollar makes the price of U.S. goods more expensive in international markets—and because foreign-earned profits translate into fewer dollars.
As always, Horizon’s investment team will maintain its flexible approach to investment management, in an effort to capture global opportunities as they arise, and sidestep the pitfalls that would seek to damage investors’ hard-earned wealth.