These market Firms are Upbeat about Second Half of 2016


Despite dour predictions by firms such as Blackrock Inc., State Street and TIAA

Global Asset Management that the stock market will at best provide tepid growth and at worst head directly into the tank, some firms are painting a rosier outlook for the market’s performance in the second half of 2016. So far, the markets have proven the doomsayers wrong, with the Standard & Poor’s 500 Index rising by 4% since June 30, and the VIX, referred to as the “fear index,” at its lowest point since July 2014. And earnings for the second quarter have only dropped by 2.3%, less than half of the 5.2% decline that was predicted.

Upbeat Outlook
These factors have led Fidelity Investments to state that: “What matters most is whether the outlook justifies the pessimism implied by record-low bond yields. To us, steadying trends in China and continued expansion in the U.S. make a modest positive surprise in both growth and inflation expectations the most likely scenario over the next 6-12 months. Late-cycle trends such as rising wages may cap profit growth, but fewer headwinds from oil prices and the dollar suggest an opportunity for earnings to surprise to the upside.” (For more, see: VIX: CBOE’s ‘Fear Gauge’ at 2016 Lows.)

American Century echoed Fidelity’s view. “Fundamentally, in isolation, the U.S. looks okay. Higher interest rates appear justified, looking at U.S. economic factors alone and ignoring global conditions. Global macro headwinds are having more impact on the smaller manufacturing side of the U.S. economy than the larger services side, which is still expanding.”

Jeffries analyst Sean Darby also shares this optimistic outlook. In his report he made the statement: “U.S. market breadth continues to improve. We would not recommend shorting the market.” He also noted that the current rally in the market has not been accompanied by a rise in margin interest, which is a common indicator that the spike is due primarily to market speculation. (For more, see: What Robert Kiyosaki Predicts for Markets in 2016.)

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