Our basketball analogy wouldn’t be complete without acknowledging the tremendous comeback stocks have made since the February 2016 lows, reminiscent of the tremendous comebacks in the NCAA tournament by Texas A&M against Northern Iowa and Syracuse against Virginia. In fact, should the S&P 500 close out the first quarter in the green, it would be just the second quarter since 1928 to be down more than 10% at one point and close higher (it’s fractionally lower with four trading days left). The stock market’s first quarter comeback is not complete, but it has been historic.
Conclusion
There you have it — our Final Four for the stock market in 2016: China, earnings, the Fed, and oil. Stock market investors may not storm the court at the end of this year, but — with some upsets and comebacks along the way — we expect stocks may deliver modest gains for the year.
We also congratulate the teams battling it out for the Women's NCAA Final Four. Syracuse and Washington have secured spots, with the last two to be decided tonight: Connecticut vs. Texas and Baylor vs. Oregon State.
[1] Historically since WWII, the average annual gain on stocks has been 7 - 9%. Thus, our forecast is roughly in-line with average stock market growth. We forecast a mid-single digit gain, including dividends, for U.S. stocks in 2016 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid-to-high-single-digit earnings gains, and a largely stable price-to-earnings ratio. Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.
[2] Historically since WWII, the average annual gain on stocks has been 7 - 9%. Thus, our forecast is roughly in-line with average stock market growth. We forecast a mid-single digit gain, including dividends, for U.S. stocks in 2016 as measured by the S&P 500. This gain is derived from earnings per share (EPS) for S&P 500 companies assuming mid-to-high-single-digit earnings gains, and a largely stable price-to-earnings ratio. Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.
[3] Our forecast for GDP growth of between 2.5–3% is based on the historical mid-cycle growth rate of the last 50 years. Economic growth is affected by changes to inputs such as: business and consumer spending, housing, net exports, capital investments, and government spending.
Burt White is chief investment officer for LPL Financial.
