The following trends will help investors decide the best course of action as they plan for the new year.
1. Global GDP Might Break Free in the Second Half of 2016
An interesting point note in the graph below is that falling GDP growth coincides perfectly with increasing interest rates in those economies (which usually happens).
2. Global Defense Spending Will Rise Sharply in 2016
- There have been more than 900 mass shootings since the beginning of 2013.
- More than 1,000 people have been killed by police in the U.S. (in 2015 so far). This has resulted in a push for reforms in police action (e.g. the use of body cameras).
- There was an 80% increase in terrorism deaths between 2013 and 2014. 2015 has been a particularly violent year, so the numbers might prove to be even more than 2014.
- ISIS has proved to be one of the most brutal and wealthy terror groups to have challenged the world. The Western world has taken time to react to their threat, but they now control large areas of Syria and Iraq. The group reportedly brings in more than $500 million a year from oil alone. Estimates on the number of fighters have varied from 20,000 to more than 100,000. As a result, hundreds of thousands of people have been displaced from Syria and Iraq.
What does this mean for investors? Because wars in the Middle East disrupt oil supply, it might lift oil prices. Defense-related spending will go up both in the U.S. and globally. These include multiple product categories, such as tanks, navigation systems, body cameras, drones and monitoring systems.
3. Pressure on Oil Will Continue in the First Half of 2016
4. 2016 Might Be a Mixed Year for the Stock Markets
5. The Dollar Will Dominate Even More in 2016
The Bottom Line
U.S. corporate earnings have not grown as fast as the stock markets, meaning the market may need a correction to align itself to reality. Unemployment is down and there is a slight improvement in inflation and GDP growth. But an increase in interest rates might push them back. The dollar is already strong and commodity prices are in free fall. A higher interest rate is not going to help them either (of course these things can’t be decided in isolation). And yet the Fed is planning to increase interest rates this month.
All this must feel like heaven for traders and speculators because anomalies result in volatility. For investors, it is very important to keep on top of things. Maybe mutual funds are the answer? Active professional management is beneficial in uncertain times.
For more frequent updates follow me @tanmoyroy.
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