Stocks are indicated to start today’s session modestly in the green following Monday’s down session, with the S&P 500 index still flirting with the break-even line for the year. With only three trading sessions left in 2015, it is more than likely that we will exit the year effectively flat.
The New Year wouldn’t be that ‘new’ when it comes to the issues facing the market. The Fed was the big issue in 2015, with market participants trying hard to handicap the central bank’s first rate hike. We are no longer concerned about ‘lift-off,’ but we will still have to read the economic tea leaves to project how fast the Fed will tighten policy, notwithstanding the central bank’s commitment to remain ‘gradual.'
Related to the Fed issue is the exchange value of the U.S. dollar relative to other global currencies. With Fed policy diverging from what other global central banks are doing, the U.S. dollar has been steadily gaining ground.
The strong dollar has come at a particularly bad time for big U.S. companies whose earnings power was already under pressure from slowing growth in emerging markets, particularly China. This global growth slowdown has been a big reason for the slump in the commodities market as well, though rampant supplies are as much to blame for the commodity market rout.
Total earnings for the S&P 500 index, which derives roughly 40% of its total earnings from international markets, are on track to be modestly down in 2015. A big part of the earnings decline is due to weakness in the oil industry, but there isn’t much growth in other sectors either.
The consensus view is for the earnings backdrop to improve in 2016, but that could prove to be nothing more than wishful thinking given the likely staying power of the issues that held down earnings growth in 2015.
What all of this means is that the New Year may not be that different from the old one.
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