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What’s Ahead For The Stock Market In 2015

by Chris Poindexter

Predicting the future is always a risky enterprise because the future has a way of making fools of us all. That’s particularly true when it comes to investing. If we knew the future, we’d all be rich. There are some general trends for 2015 that are becoming more clear as we reach the end of 2014. What lies ahead is not that difficult to see.

There are some big trends shaping up that will influence 2015 and possibly change how you partition your investments.

The Energy Sector Will Continue To Drag On The Market

It’s more than a little ironic that lower gas prices, which are good for consumers, particularly around the holidays, are ultimately bad for the economy. Lower oil prices fuel greater demand at times when oil company profits are lowest. When oil company profits take a hit, they inevitably cut back on exploration, which is expensive. Saudi Arabia, a country that has been profiting from our country’s insatiable appetite for fossil fuels for decades, knows that if they keep prices low, we’ll start using more oil and set ourselves up for price shocks in the future. That’s part of the reason OPEC decided to maintain production in an environment of falling prices. It costs them less to pull their oil of the ground than it does to extract oil from tar sands and the Saudis are patient players.

Growth Will Lag

The global growth we’ve experienced in the last 10 years is simply not sustainable. While everyone might agree intellectually that infinite growth on a planet of finite resources is not possible, no one really understands how that reality will translate to markets. What we can say for a certainty is that growth will slow at some point and we may be reaching that point already. Certainly the creative destruction of capitalism will continue to create new avenues of growth and new markets, but that growth, at least in 2015, will be tempered by a global economic slowdown.

Volatility On The Rise

Investors are nervous going into 2015 and that trend will fuel an environment of volatility for most of the year. Typically there’s a selloff in equities at the end of the fiscal year, which is December 31. The traditional end-of-year beat down is starting a good three weeks early this year, with U.S. and global equity markets taking big hits just as dividends and capital gains numbers are starting to roll in.

Not All Bad News

Balancing out the bad news going forward are several positive economic trends. Employment is staying strong even though wages are still lagging. Savings at the gas pump are tempting consumers to spend more and the Q4 economic numbers are looking quite good, with the exception of the energy sector.

There we have the big trends that will dominate investments in 2015 but how do you position your investments for a more volatile environment? Step one would be to rebalance your portfolio, like you should be doing twice a year anyway. With gold prices depressed, rebalancing should already be prompting you to sell off some of your equity winners and shift some of that cash into hard assets, like gold and silver.

Rebalancing at the end of this year is also an opportunity to shift your investment strategy from growth to income. While we’re running into a challenging growth environment in 2015, we’re still looking at what should be a very profitable year. CEO confidence is high, consumer confidence is the highest in nearly a decade and corporate profits are healthy. Shifting to a dividend and income strategy will lower your exposure to volatility, though do be aware it can also impact your taxable income. Consider municipal bonds as a source of income that can also hedge some of the tax issues. If you haven’t talked to your tax advisor in a while, making an appointment before the end of the year might be worthwhile.

While this may not be the year to abandon equities it is the year to keep up with the “sell high” half of “buy low, sell high”. You may not want to change the percentage of your income in equities, unless you’re making an age adjustment, but you may want to change the distribution of your equity investments. For sure 2015 is going to be different. Less lucrative in some ways, but still ripe with opportunity for the future.

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