In 2015, commodity stocks, such as oil, underperformed whereas popular large growth stocks overperformed. Some of the largest stocks were AMZN, GOOG, NKE, FB, and HD. However, as you know, trends tend to change. Investors are placing their money in stocks of smaller companies and value companies in anticipation of a return next year. Here is a list of five investment trends to look out for in 2016:
The U.S. Dollar
Yes, the U.S. dollar is expected to perform well next year. The Euro will likely depreciate against the U.S. dollar in 2016 when the Federal Reserve raises interest rates. It has been 10 years since the Federal Reserve increased interest rates. Currencies with high interest rates deliver a greater return when you borrow in a lower yielding currency to buy a higher yielding currency. Additional reasons the U.S. dollar is increasing in value are decreasing commodity prices and economic problems in emerging markets.
The financial sector will also benefit from the Federal Reserve raising interest rates in 2016. It is predicted Financials (XLF) will experience higher lending activity, interest income, and advisory fees. Financials will prosper from share buybacks, corporate spending, and demand for mergers and acquisitions.
According to Credit Suisse’s strategists, Europe will see 10% earnings per share growth next year in comparison to 6% EPS growth in the U.S. It is predicted that the rise in European corporate earnings will lead to European equities outperforming U.S. equities. Barclays Research agrees with this forecast because Europe’s estimated earnings growth rate is larger than the U.S., Japan, and the U.K. Because of weak economic growth in Europe, low emerging marketing demand for European goods, political conflict, and the lack of new economic stimulus from the ECB, it’s possible European stocks will fall. The gradual strengthening of Europe’s domestic economy makes up for this weakness.
Based on its mergers and acquisition activity and potential earnings growth, the technology sector is still valuable. Technology’s strengths are flexibility with balance sheets, attractive growth profiles, operational leverage, and low financial leverage. In 2016, investors expect Technology to profit from higher capital expenditures that result from companies aiming to boost productivity.
During 2016, the Health Care Select Sector performed better than the stock market for the majority of the year. Although it suffered from political conflict and Valeant’s accounting scandal, some investors are expecting the Health Care Select Sector to perform well again next year. It will be a wise investment choice because of a good dividend yield, high cash balances, strong top-line growth, high barriers to entry, and earnings stability.
Investment trends that are likely to occur in 2016 are the U.S. dollar (UUP), Financials (XLF), European equities (HEDJ), Technology (XLK), and Healthcare (XLV). Investors will be considering these five areas during the end of 2015 and also throughout 2016. An important event for 2016 is the rise of interest rates by the Federal Reserve. Definitely pay attention to this and its effects. The U.S. dollar will most likely benefit from it as well as a few other investment options.
David Milberg is a financial expert and an investor from NYC.