A Bottom in 2017?
Based on the history of bear markets trading, Rick Taft, an investor and prop trader for Koyote Capital, believes that we’re in the midst of a major downturn comparable to 2009.
He’s a firm believer that history is repeated in a loop and that “it’s different this time” is not often accurate.
As you might expect, he doesn’t feel as though this would be the most optimal time to go long on stocks, as he believes the S&P 500 could drop another 11% from here.
One big concern he has is that indexes are being led by just a few stocks, and that there is no breadth.
The good news is that Taft expects the market to bottom in early 2017, which would then present a buying opportunity for patient investors.
Taft isn’t the only well-known name that is concerned about 2016.
China, Oil to Matter Heavily
Mark Dubee is the managing director and chief fixed income strategist at Hilltop Securities. He’s concerned about China and oil. Regarding China, he believes that actual gross domestic product (GDP) growth is nowhere near the reported 6.9%, but closer to 2%.
He cites slowing demand and commodity oversupply as telling signs of a slowing economic engine.
On the oil side, he thinks crude will trade somewhere in the $20s, and that hope for a production cut from Russia and OPEC is nothing more than a pipe dream.
Another component is that U.S. frackers can produce more oil than any other producers on earth, especially with new technologies, which will keep prices down.
Other expectations include no move from the Fed in 2016 either way, big dividend cuts, and lots of ratings downgrades.
Important Numbers, Opinions
According to Challenger, Gray & Christmas, January layoffs were the highest since last July, with retail and energy cutting the most jobs. Overall, 75,114 jobs were cut, which was a 200% increase from December and a 42% increase year over year.
In retail, 22,246 jobs were cut, which was the highest reading in seven years. U.S. holiday sales increase 8%, but part of the reason for the reduced headcount relates to the rising popularity of online shopping. Online sales jumped 25% year over year whereas brick and mortar sales slid 5%. Wal-Mart Stores Inc. (WMT) and Macy’s, Inc. (M) have both been in the news for closing underperforming locations and slashing headcount. Walmart announced it would cut 16,000 positions and Macy’s announced it would cut 4,820 positions. (For more, see: Why Walmart’s Stock Price Keeps Falling.)
The energy sector is also in a bit of a bad position… As oil struggles, oil producers and explorers continue to reduce headcount in order to cut costs. There were 20,246 energy-related job cuts in January.
The Goldman Sachs Group, Inc. (GS) recently released a statement that its indicators for future activity in exports and manufacturing are quite low, which indicates softer business activity for the beginning of 2016. After durable goods slid 5.1%, Deutsche Bank AG ( DB) stated that its U.S. GDP growth expectation of 1.8% for 2016 might be ambitious. In a note to clients, the bank stated that “the risks to our growth and interest rate projections are distinctly to the downside.” (For more, see: Navigating the 2016 Economic Chessboard.)
The Bottom Line
Will there be a bottom in early 2017? That’s a difficult question to answer. In the meantime, while there are no guarantees, based on the information above, it appears as though 2016 might continue to present a challenging investment environment. Use caution, and consider discussing a conservative investment strategy with your financial advisor. (For more, see: A 2016 Outlook: What January 2009 Can Teach Us.)
