LPL Research expects to see routine year-end outcomes in many areas of the economy and financial markets in 2016, but how we get there may be anything but routine. Certain conditions have been unusual for so long, that 2016 may hold some unexpected turns that could catch some investors unprepared, and it will take a solid investment plan to navigate it.
Some of our expectations, as we follow what may be an unfamiliar path for 2016, include:
U.S. economic growth of 2.5 – 3%. However, the mix of that growth may look different than in 2015, with manufacturing, business capital spending, and net exports taking larger roles. Labor markets are almost back to long-term expectations, and inflation may be poised to accelerate. An extraordinary extended period of loose monetary policy in the United States should start to normalize.
Mid-single-digit returns for the S&P 500. Stocks, we believe, will not collapse, as many think, or soar, as many hope, but may offer near historical routine returns. Earnings may start to normalize, and oil markets should find their equilibrium. International markets may re-emerge as a more viable investing opportunity. But we are still in the second half of the economic cycle, and investors need to be vigilant about monitoring pockets of volatility and potential signs of an economic downturn.
Limited returns for bonds. The year as a whole may look similar to 2015, with bond prices facing the challenges of high valuations, steady economic growth, and the prospect of interest rate hikes. But bonds still play a vital role in investors’ portfolios, to help with risk mitigation and diversification.
For some investors, progress toward their financial goals has been hurt by breaking with well-considered investing routines in response to one of the most maligned bull markets in history. LPL Research’s Outlook 2016 will help investors stick to their routines in the face of developments that may seem anything but routine. By maintaining our investment process, we can focus on what matters most to markets, block out shortterm distractions that will quickly fade, and turn a good daily routine into the potential for successful long-term performance.
In my decade plus time advising clients, I have seen this truth—my most joyful clients are my most successful investors. Not the other way around. The rewards follow the joy, not joy the rewards. They view the future as bright and invest faithfully in it knowing that no amount of market return will ever be able to generate an internal joy, but that prudent stewardship and a long-term perspective can perpetuate the upward spiral of joy.