Stock Market Advice: The No. 1 Thing Investors Need to Know in 2016

Stock Market Advice 2016The Best Stock Market Advice for 2016

My stock market advice for 2016 is all about having a strong defense. This has been one of the worst starts for the stock market in many years. It’s emblematic of one thing—economic cycles are changing and capital markets don’t really know how to deal with it.

Considering where the broader market has come from since 2009, it’s incredible that stocks haven’t experienced more severe corrections. It’s a very good lesson about the power (right or wrong) that central bank monetary policy has over capital markets and investor sentiment.

With a new interest rate cycle upon us, eventually, the bears will be proven right. But we’re not there yet.

As a medium- to long-term investor, what’s most important is to look through the current trading action (a correction which is not unreasonable, considering the huge capital gains over the last few years) and focus on only the material news that matters: corporate earnings and economic data. Everything else is just white noise.

It’s been a long time coming, but U.S. equities now trade off Chinese data. It’s still just one of many catalysts, but Chinese economic growth is now a significant part of the performance of U.S. multinationals. Therefore, the U.S. equity market also trades off of China.

Oil has been the spoiler. It’s broken the traditional sentiment cycle regarding the stock market. Previously, as the U.S. economy did better, oil prices rose. It was a traditional indicator that fit the domestic facts.

But as often happens, technology changed the game. It’s done so with oil and natural gas production and the commodity price action reflects this.

Quite frankly, I think capital markets just don’t know what to make of the current situation; a lot of institutional investors haven’t experienced these kinds of fundamental changes in the business cycle.

The most important stock market investment advice I can offer in these times is to focus on investment risk, not potential return with equities. The key for the next two years is portfolio quality, dividend income (because it is a slow-growth world), and portfolio allocation for a rising interest rate environment.

Institutional investors are the driver of share prices. They have money to invest and fundamentally, they want certainty and earnings predictability.

Lots of companies offer this. For investors making portfolio additions in this market, consider my list of “Top 10 Dividend Stocks For 2016.”

Fortunately, a new earnings season is upon us and this will take investor attention away from two of the market’s most volatile catalysts: oil prices and Chinese economic data. The good news now is that investor sentiment has come down a lot and so have expectations.

JPMorgan Chase & Co. (NYSE:JPM) is a Dow component and one of the most important benchmark stocks to follow. Even if you are not interested in this stock, what the company reports is material information.

Fourth-quarter 2015 earnings for JPMorgan grew 10%, while fiscal year 2015 total earnings and earnings per share were at a record. According to the company, all of its home equity, mortgage, and credit card delinquency trends are on the decline.

It’s early days this earnings season. What companies report is the most important news.

My main takeaway stock investment advice: an emphasis on portfolio quality and investment risk is key, as both Main Street and capital market cycles change.

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