With the new year right around the corner, I figured I’d join the rest of the professional prognosticators and share my market-related predictions for 2015. I hope to cast a wide enough net that I’ll be praised for one correct prediction while the rest of my wrong predictions will be all but forgotten. This is only standard practice in the art/science of professional prognostication.
Alright, let’s get to it. In no particular order, here are my $TWENTY15 predictions:
- Return of the small caps. After severely underperforming the broader market this year, small caps will begin outperforming the rest of the market by a large margin. 2014 has been nothing but chop for small caps. There was a bunch of talk about how the underperformance in small caps was indicative of an impending crash in the broader averages. At one point in October, the Russel 2000 was down 10% from highs, and was negative year-to-date as recently as December 16. While the Nasdaq is up 14% YTD and S&P 500 up 12% YTD, the Russel 2000 is up less than 3% YTD, positive gains of which came in just this past week alone. Mind you though, that the Russel was up nearly 40% in 2013 so it’s only made sense that we’ve seen a year’s worth of consolidation to digest those gains. Size has mattered in 2014, and I believe it will matter again in 2015 – only this time smaller will outperform.
- Increased market volatility. The past 3 years or so there has been very subdued market volatility. People (including myself) have been calling for a rise in volatility for a couple of years now, especially ever since 2013’s aberration of slow and steady high returns. This year we saw relatively short periods where volatility would tick up but then things would go back to business as normal. Volatility really picked up though in October when the S&P had been down 10% from its highs and closed below its 200-period moving average for the first time in 2 years. Since then, the market has snapped back to make new highs. In my opinion, October’s action will end up being a prelude to further market volatility and this time with some real staying power. This isn’t to say I’m bearish on equities in 2015; I just believe there will be more market gyrations to come. If this is the case, then it will be especially imperative that you know who you are as a market participation and your respective time frame (as it always is).
- There will be a flood of financial pundits giving their two cents when the Fed raises its target fed funds rate some time next summer. $SPY message volume will spike the day Fed actually announces its rate hike.
- King Dollar will remain strong in 2015. Foreign monetary authorities have engaged in slashing interest rates & effectively undergoing their own QE programs. Meanwhile the Fed is set to make its first rate hike in over 6 years next summer. In addition, in response to fears of a slowdown in global growth, the US dollar will continue to see the notorious “flight to quality” that we all know and love. Export-dependent companies will gripe about the US dollar’s strength in their conference calls and will blame their poor revenue numbers on poor international sales, warranted or not. Technically, there may be some resistance in the low $90’s but I’d expect further appreciation in King Dollar.
- Cyber security stocks will be bid up even more. Honestly, I’m surprised we didn’t see a broader, more momentum-type run in cyber stocks this year given all the hacking scandals this year (too many to name). Perhaps 2015 will be the year of cyber security. Here’s a quick list of names I’d keep an eye on, many of which are at or near highs: link
- Bitcoin will trade back above $500.
- Oil ($CL_F) will stay below $80 a barrel but won’t make new lows in 2015. Oil, along with energy-related names, will rebound in Q3/Q4 of 2015.
- Alibaba ($BABA) will make new highs in 2015.
- My S&P 500 target for 2015 is 2200… just because.
- It may take awhile but $XLE will be one of the top 3 best performing sectors in 2015.
- Gold will trade below $1000/ounce.
- People will try to catch the top in the market as well as the top in bonds.
- People will try to catch the bottom in oil.
- Some longer term, individual stock charts that look very interesting to me are Citibank ($C) and Ebay ($EBAY). Both have pretty similar looking weekly charts – both have been consolidating/going sideways for well over a year. First, Citibank has been trading between about $45 and $57. A weekly close above $57 would be very interesting to me. Second, Ebay has been going sideways for about 2 years now between $47 and $59 or so. You may recall that I was bullish EBAY heading into 2014 because of this very same consolidation pattern. The stock made new all-time highs early in the year, and there were many people pointing out the breakout as well. Unfortunately, the breakout ended up being a false breakout, as the stock traded back to the lower end of its weekly range. I’m sure there will be many eyes on this one if/when we see another attempt at a breakout. If we get a real breakout this time, I could easily see this one trading up towards $70-$80. One step at a time though.