If the first two and a half months is any indication to go by, the equity markets in 2016 will continue to be plagued by headwinds similar to those that hurt stock performance last year. These include oil price volatility, the bearish Chinese stock market, Fed’s tug-of-war with interest rates and the strengthening of the U.S. dollar.
What’s With the Economy?
The first two weeks of 2016 was practically scary for investors, sparking fears that the seven-month old bull market was nearing an end. However, modest economic growth and impressive employment statistics annulled such speculations, injecting some confidence into the otherwise bleak economic scenario. The market correction in the last week of January was more or less followed by an uptrend in stock prices, primarily fuelled by factors like a rise in oil prices and rebound of manufacturing data to some extent.
It is too early to comment on the fate of the market as the present wave of optimism can die a premature death, in the event of any unfavorable macroeconomic headwind. Presently, it appears that Fed’s determination to hike interest rates will be largely thwarted by factors like muted inflation, lackluster economic growth outside the U.S. and low global-bond yield environment. Amid such market volatility, European Central Bank’s (ECB) latest decision to cut its lending rate to a range of 0-0.05% has largely left investors flustered. Naturally, European markets were largely down after the news.
Moreover, pessimists remain unsettled by the stunted growth of China that can eventually lead to negative credit cycles and recessionary fears in the emerging economies. Countries with close trade linkages with China are expected to be worst-hit. Also, a slowdown in the global industrial markets and commodity price fluctuation can pose a major threat.
Where Does That Leave You?
If the worsening pressure abroad is testing your patience, then it is just the right time to overcome the fears by betting on the right mix of stocks. Even the most paranoid investors, filled with deep skepticism, will be unable to overlook the fact that 90% of a portfolio’s return is determined by the perfect stock mix. Although 2016 may not have proved to be the most prospective year so far, greener pastures are not impossible to locate.
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