3) The Fed. Stocks have historically done quite well after the Fed starts rising interest rates, which it did in December 2015. That said, there is a risk that the Fed hikes rates too aggressively and upsets financial markets and the U.S. economy. (See today’s Weekly Economic Commentary for a Federal Open Market Committee [FOMC] meeting preview.)
4) Earnings. Fourth quarter 2015 earnings season was disappointing. The declining drag from the strong U.S. dollar and smaller energy declines are expected to help earnings growth improve throughout 2016, but the mid-single-digit earnings gains we had initially anticipated for this year may be delayed until 2017.
Conclusion
Stocks may not produce scintillating gains in 2016, but we do expect the bull market to continue despite its age and the aforementioned risks. Bull markets don’t die of old age, they die of excesses. We do not see warning signs that might signal the end of the economic cycle or the now seven-year-old bull market.
Thank you to Ryan Detrick for his contributions to this report.
Burt White is chief investment officer at LPL Financial.