2014 Action to Affect Stock Market Forecast in 2015
Despite the hurdles and uncertainties along the way, 2014 turned out pretty good for the stock market. By the year’s end, the S&P 500 had broken 2,000, while the Dow took out 18,000. Technology was tops with the NASDAQ advancing more than 14% with big buying in the brand-name social media and Internet services stocks. The small-cap sector fared the worst, with the Russell 2000 gaining a small amount as the stock market dumped higher-beta stocks.
The bumpy ride in 2014 was driven by the elimination of the Federal Reserve’s easy money via its bond buying, along with economic stalling in the eurozone and China. Russia is facing tough economic sanctions that will drive the economy into another recession this year and impact Europe. Japan fell into a recession in the third quarter, but the easy money there could pull it out.
The key this year will be the ability of the global economy to accelerate its growth. Russia also needs to stop its defiance in order to allow its economy to grow again. With the World Cup slated for Russia in 2016, I expect President Putin to conform to demands; otherwise, the country will likely lose its right to host the soccer tournament in 2016.
China is facing issues with its growth, and its real estate market looks fragile. The country is trying to drive consumer spending and lessen its dependence on foreign demand and investment. Growth in China will help drive the global economy.
Domestically, the jobs market was positive with more than 200,000 jobs created in all but one month, and the unemployment rate declined to below six percent. If this holds this year, we could see the economic renewal continue, driving gross domestic product (GDP) growth.
In the third quarter, the GDP rate grew at an annualized five percent. If the GDP growth continues at or near this rate, we could see good economic and corporate growth in 2015.
The energy market collapsed in 2014, with oil prices dropping to the $50.00 level. In the last few days, West Texas Intermediate (WTI) oil has plummeted below the $50.00-per-barrel level, hitting lows not seen since April 2009. Oil prices seem to be struggling to find a bottom. Investors interested in this sector may look at major weakness as an opportunity to buy for aggressive accounts.
Then there are also interest rates to consider. Later in the year, interest rates are expected to head higher. As long as the move is gradual, I expect the stock market to continue to afford the best opportunities. The 10-year bond yield at the low-two-percent range is horrible. With nowhere else to turn, I believe investors will continue to buy the stock market.
My Stock Market Predictions for 2015
So, if the economic renewal continues and the economy continues to grow, we could see a rebound in the small-cap sector this year. The Russell 2000 could advance 10% to new record-highs. Investors should be careful here, though, as higher-beta stocks will continue to have the most risk and vulnerability to the downside, though the potential gains will be the highest in this group. A strong and sustained break at 1,200 would be bullish for the Russell 2000.
In the broader stock market, the S&P 500 could take out 2,300 this year, but it will face pressure from oil stocks that account for about 15% of the index.
Blue chips ended 2014 on a strong note, which bodes well for this year. With a gain of 7.5% in 2014, the DOW could return better this year. I’m not convinced about 20,000 this year and doubt it will even materialize unless the stock market sizzles, but I do expect a move to 19,000. For DOW stocks, I like the banks and technology, along with the consumer cyclicals.
Technology was tops last year and could be again this year. The NASDAQ will likely take out 5,000 and trade at a new record above 5,100. Look for the big gains to continue in the mobility and Internet areas. I expect traders will focus again on the top momentum stocks. Top brand-name stocks include Apple Inc. (NASDAQ/AAPL), The Priceline Group Inc. (NASDAQ/PCLN), Facebook, Inc. (NASDAQ/FB), and Google Inc. (NASDAQ/GOOG).
As I said, the key to success in the stock market this year will be the situation in China, along with the eurozone and the global economy.
I expect the stock market to be volatile, which means potential opportunities to buy on market weakness. Stock market adjustments of five percent or more are worth considering. Meanwhile, a strong January could again imply an up year for the stock market. Given the expected volatility, look at strong gains as an opportunity to take some profits.