After a year of disappointment in everything from U.S. stocks to emerging markets and junk bonds, investors are approaching 2016 with low expectations.
As The Wall Street Journal reports, some see the past year as a bad omen. Two major stock indexes posted their first annual decline since the financial crisis, while energy prices fell even further. Emerging markets and junk bonds also struggled.
Others view the pullback as a sensible breather for some markets after years of strong gains.
While large gains were common as markets recovered in the years after the 2008 financial crisis, many investors say such returns are growing harder to come by, and expect slim gains at best this year.
“You have to be very muted in your expectations,” says Margie Patel, senior portfolio manager at Wells Fargo Funds, who expects mid-single percentage-point gains in major U.S. stock indexes this year.
“It’s pretty hard to point to a sector or an industry where you could say, ‘Well, that’s going to grow very, very rapidly,’” she says, adding that there are “not a lot of things to get enthusiastic about, and a long list of things to be worried about.”
As the year neared an end, a fierce selloff hit junk bonds in December, while U.S. government bond yields rose only modestly despite the Federal Reserve’s decision to raise its benchmark interest rate in December, showing investors weren’t ready to retreat from relatively safe government bonds.
For the U.S., 2015’s rough results stood in contrast to three stellar years. After rising 46% from 2012 through 2014, the Dow Jones Industrial Average fell 2.2% last year. The S&P 500 fell 0.7%.
While most Wall Street equity strategists still expect gains for U.S. stocks this year, they also once again expect higher levels of volatility than in years past. Of 16 investment banks that issued forecasts for this year, two-thirds expect the S&P 500 to finish 2016 at a level less than 10% above last year’s close, according to stock-market research firm Birinyi Associates.
Read the full story (subscription may be required).
