12 themes that will dominate global markets in 2016

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What to look for over the next twelve months:

1.) Volatility will play a dominant role once again for investors as both an instrument of opportunity for the brave, but also a measure of risk aversion for the majority of investors. I expect a sharp spike higher (VIX) in Q1 as a result of equity market instability.

2.) US equities will remain coupled to crude over the near term (Q1 & Q2)

3.) WTI  crude will act to drag on equity markets as it is very likely that the global oil glut will worsen over the first half of the year. Increased production and export from Russia and Middle East suppliers coupled with pending US crude exports will place additional pressure on pricing. US rig counts will continue to contract though at a more modest pace. Supply/demand equilibrium will likely take shape in the second half to be accompanied by an attempt at price stabilization and a modest rebound. Year end target of $42.00/bbl.

4.) US interest rates: Chair Yellen has made it clear that any move higher in interest rates will be data dependent, shallow and protracted. That “gradual” narrative, though dovish, is counter to the interest rate flight path relative to the balance of the world’s central banks as they continue to provide liquidity in efforts to ignite demand.

5.)US corporate earnings will be challenged by a stronger dollar and rising rates. However I expect to see S&P revenue growth (+8%) and a modestly constructive year for equities SPX (+6.0%).

6.) US economic expansion will moderate in the second half but remain positive. GDP for the full year should be close to +2.8%. Housing gains (starts/sales/prices) will slow to a more sustainable pace. Auto sales will remain robust and at historic levels. Consumer confidence and sentiment will continue to track higher with employment gains and increased disposal income as a result of lower energy costs.

7.) US employment gains will slow with the official unemployment rate settling in at 4.6%.

8.) China’s slowing economic performance GDP will be closely watched with the path least of resistance still modestly lower (+6.4%).

9.) Emerging Markets will continue to under perform as a result of weak global demand, corruption and dependency of natural resources.

10.) Global demand will remain hampered by only modest economic expansion here in the US, a continued contraction in the rate of growth in China, continued economic contraction in emerging markets and an EU that remains heavily dependent on ECB accommodation.

11.) Presidential politics will be a variable for equity markets. Trump/Clinton?

12.) Geo-political and economic shocks and terrorism will continue to play the role of “Wild Card”. If recent history is any indication, that role will act to trigger heightened volatility and shake investor confidence.

Largest risks to the stock market:
Global slowdown/ China
Geopolitical instability
Federal Reserve course of action
Strong dollar
Presidential politics


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