Looking ahead to 2015, the first and most obvious news the marketplace will be looking for is fourth-quarter earnings.
Even before oil prices experienced their material sell-off, fourth-quarter earnings were looking good, as corporate reporting in both the second and third quarters of 2014 estimated a solid finish to the year.
Now that oil prices are lower, they’re likely going to pad earnings for a number of industries in 2015. While the energy sector has obviously felt the hit, lower prices for gasoline and diesel will contribute materially to the transportation sector and could boost stocks in 2015.
One of things the equity universe is not afraid of in 2015 is a hike in interest rates. In fact, the marketplace seems to see the prospect of higher rates as confirmation that the economy is getting stronger.
Predicting where stocks are going to go is a fool’s game, but I think it’s very reasonable to expect solid earnings growth, as the cost of capital remains low and corporate balance sheets are in excellent condition.
One company that I feel represents solid expectations for 2015 is 3M Company (MMM). 3M’s management recently announced that it expects the company’s operating margins to improve this fiscal year and next.
Earnings-per-share (EPS) growth is expected to average nine percent to 11% through to 2017, based on organic annual sales growth in the mid-single-digits. And as evidence of the company’s solid balance sheet and confidence in its cash flow, 3M just announced a 20% increase in its quarterly dividend, effective the first quarter of 2015.
So stocks will continue to churn and capital markets will gyrate on currency and commodity instability. But as I always say, what corporations actually say about their businesses is the most material information for investors.
Oracle Corporation (ORCL) recently beat Wall Street consensus with its latest numbers. What investors look to most from this mature enterprise is sales growth. Software and cloud revenues grew five percent comparatively. The company’s numbers were an improvement from the previous three quarters.
I’m still a fan of the stock market’s existing winners, especially among large-cap, dividend-paying stocks, which have earnings leverage. (See “Six Mature Companies with Earnings Momentum into 2015.”)
Expect a considerable number of dividend increases in the first half of 2015. Companies are still sitting on a tremendous amount of cash. It’s just so easy for them to return it in the form of higher dividends and share repurchases.
Transportation stocks are still a key indicator for the broader market and the Dow Jones Transportation Average is the one to watch in this regard.
Even if there is good corporate earnings growth, this is a stock market that can still experience a material price correction, simply because it has done so well over the last few years. Within the context of a secular bull market (which I believe we’re in), equities could sell-off tremendously and the U.S. economy could even experience a recession.
The swift and material drop in oil prices was a shock to the system; the uncertainty it created affected sentiment. But these kinds of shocks are always a potential reality.
Stocks are now slowly looking beyond oil prices. Going forward, I believe that good corporate earnings will contribute to more positive trading action.