The experts at Goldman Sachs have begun rolling out their outlooks for 2016.
In a client note on Thursday, they outlined what they believe will be the top-10 themes across global markets in the new year, which inform their various forecasts for stocks, bonds, commodities, currencies, and everything else in between.
“Growth has consistently disappointed over the past several years, but this has not prevented risky assets from increasing substantially,” the strategists, including Charles Himmelberg, wrote. “In 2016, we expect activity to continue to expand in the advanced economies, led mostly by the consumer.”
For stocks, Goldman forecast that the S&P 500 would end next year at 2,100, implying only a 5% return from current levels. And, betting on the US dollar, and against the euro and the yen, is Goldman’s top trade recommendation for 2016.
The themes reiterate some of the same big discourses of 2015, like monetary policy divergence, lower-for-longer commodity prices, and modest S&P 500 returns.
These are the 10 themes from Goldman’s report.
1. Stable global growth
5. A broad decline in commodity prices, in varying degrees
The rationale here is that supply of CapEx commodities like steel and iron ore is harder to take off the market. The high fixed costs of facilities like mines makes it more expensive to suddenly shut them down, and so producers are more willing to continue producing if there’s demand.
But OpEx commodities like shale oil can cheaply be removed and restarted, although that means producers have less incentive to do so.
They wrote: “For 2016, we expect the ‘lower for longer’ theme for commodity prices to continue, but with the additional ‘demand tilt’. Namely, that China’s efforts to rebalance demand from investment to consumption should reduce demand for CapEx commodities (such as steel, cement, and iron ore) much more than it reduces demand for OpEx commodities (such as energy and aluminum).”
Source: Goldman Sachs
10. Corporate earnings may bounce back
Corporate earnings growth plunged during the Great Recession, rebounded from 2010 during the earlier years of the recovery, and are now soft again.
The last time this pattern happened was in the mid-to-late 1990s, and it was followed by a sharp drop. The similarity has some worried about what will happen next.
The analysts wrote: “Indeed, the stable-to-rising rising trend in median margins is one of the more remarkable features of the corporate sector during the post-crisis period. The disappointment is real revenue growth, which has twice experienced a mild ‘revenue recession’ during the post-crisis period after never having experienced one over the prior 30 years. Thus, assuming margins are maintained, we see ample scope for renewed growth of revenue and earnings via the corporate sector’s beta to firming US and global GDP growth.”