How would you like to know what is going to happen for the rest of 2015? Imagine the amount of money that could be made by just acting upon perfect foresight into the future of the stock market.
Well, the truth is, no one really knows what exactly will happen tomorrow, let alone for the next seven months. Not even the most successful hedge fund managers or political leaders can say with certainty what is going to happen. With this said, we can make intelligent guesses based on the available facts to ascertain what the future holds.
One way to do this is to take a look at the past.
The last seven years have been an incredible ride for bullish stock market investors. From a low in the 6600 zone in March 2009, the Dow Jones Industrial Average has rocketed to solidly above 18,200 in March 2015. The move marks an incredible 11600 plus point gain of nearly 300% for the overall market.
I have vivid recollections of the end of the stock market selloff back in 2009. Virtually every pundit and market prognosticator were extremely bearish. It felt like the end of the world for stock investors. Everything was falling apart with many calling for the massive decline to continue. The subprime mortgage crisis, the banking crisis, and the collapse of real estate prices all conspired to create an extremely bearish environment.
The next thing investors knew is that stocks were climbing higher. It was hard to believe, but the proof was right there. Many investors failed to jump on board feeling that the move was nothing but a dead cat bounce and the downward trend would soon commence again. Rather than following what they saw, these investors preferred to listen to the doom and gloomers preach end of the world type scenarios rather than what they were witnessing.
Savvy investors saw what was happening, stepped away from the majority of bearish sentiment and started buying hand over fist. Some of these investors made fortunes that will last a lifetime over the last 72 months.
It was very clear to the minority of stock market players that went long that the massive power of the Federal Reserve supported the bounce from the lows.
Multiple injections of cash and radically lowered interest rates combined with quantitative easing programs helped jump-start the beat down U.S. economy. Boy, did it work!
Despite unfounded fears of runaway inflation and out-of-control debt spirals, the economy was indeed jump-started. None of the doom and gloom prophet’s proclamations came to pass. In fact, the exact opposite occurred. The real estate market bottomed, the struggling banks were bailed out, and the stock market started a rocket ride higher to where it is today.
While there were corporate casualties, some of a huge scale like Lehman Brothers, the overall lasting carnage ended up being minuscule.
Today, six extremely bullish years since the stock market bottom, the question on everyone’s lips is “Will the bull market last?” Many investors are extremely concerned since the market appears to be giving off mixed signals.
On the bearish side, the specter of rising interest rates and the end of quantitative easing by the Federal Reserve means there will no longer be direct governmental support for the economy and stock market. The Fed has made it very clear that interest rates will likely start to climb this year. Most stock market observers strongly believe that higher rates means a slow down or end to the bullish advance.
The bull market continuing argument points toward the fact that the Federal Reserve will be extremely judicial in raising interest rates. This means there will be no “rate shocks” to the financial system. In other words, stocks and the economy in general will be able to digest slowly climbing rates without much ill affect. It is largely uncharted territory since the modern U.S. economy has never experienced such a long period of near zero interest rates.
In addition, there are multiple signals that the economy will continue to improve without the Fed’s support. Basically, the Fed’s meddling has done its job of jump starting the economy therefore it will continue to expand from here.
Both arguments have their adherents and detractors. Recently, Business Insider reported that the formidable financial powerhouse of Bank of America Merrill Lynch listed twelve very compelling reasons that the bull market will continue at least until the end of the year.
Here’s what they had to say:
1. Expect higher growth and higher stocks despite climbing interest rates. The bank believes that stocks will readily discount rising interest rates and climb despite the headwinds. This means that there will be no “bond shock” in the financial markets.
2. The greenback will remain in a bullish trend with stock market volatility climbing while stocks continue to push higher. This goes against traditional stock market wisdom, but stranger things have happened! At the same time, Bank of America is calling for opportunistic potential in emerging markets and commodities. Opportunistic means that there will be great trades available but you need to strike when they set up. They do not have any directional bias in emerging markets or commodities for the rest of the year.
3. The Federal Reserve will hike rates by 0.25% in September. As we see from the first projection, this is not expected to negatively affect the stock market. This is due to the fact that the stock market is expecting the rate increase therefore has it "priced in".
Now that we have the overall Bank of America Merrill Lynch projections for the rest of 2015 out of the way, here are a few of their individual analyst’s ideas for the next six months.
Dr. David Woo, Managing Director and Head of Global Rates and Currencies Research, is targeting a stronger U.S. Dollar and parity with the euro during this time frame. Parity means that the greenback and the euro will be equal in value for those of you not familiar with foreign exchange.
Francisco Blanch, Head of Commodities and Derivatives Research and Derivatives Strategist has forecasted oil prices to remain flat with Brent at $61 per barrel on December 31.
Dr. Hans Mikkelsen , Head of High Grade Credit Strategy, projects flat total return for High Grade Corporate bonds for year.
As you can see these are some seriously bright individuals making the forecasts for Bank of America Merrill Lynch. They have teams of researchers providing up to the minute data that is carefully analyzed to render the projections. In other words, it is what the best the best expect to happen. Is there any guarantee that this is what will occur over the next six plus months? No way! However, it is comforting to know that the overall tone is very bullish across the board despite the expected headwinds.
We firmly agree with the overall bullish sentiment of BOA/Merrill Lynch and applaud them for taking a stand!
The Key Takeaway
We can only make educated guesses as to what will happen for the rest of 2015. Taking all the available data into account, there is a very strong case for the bull market to continue at least until the end of the year. Although there will be substantial bearish headwinds to further advances in the stock market, the economy has been primed enough by the Federal Reserve to continue its upward trajectory!