A key to success, in life and investing, is juggling the familiarity and wisdom of old routines with the adjustments demanded by an ever-evolving world. As we look forward to 2016, the LPL Research team expects a return to routine for some key areas of the economy and market, but by a path that may catch some investors unprepared. Investors will need a solid plan to navigate the changing landscape as they adjust to changes like the start of Federal Reserve (Fed) rate hikes, a maturing economic cycle, and the 2016 elections. As a guide to revitalizing routines for 2016, we are excited to introduce the LPL Research Outlook 2016: Embrace the Routine, with financial market forecasts, economic insights, and investment guidance for the year ahead. Some of the expectations for 2016 include:
S. economic growth of 2.5–3%. The mix of that growth may look different than in 2015, with manufacturing, business capital spending, and net exports taking larger roles. Labor markets are almost back to long-term expectations, and inflation may be poised to accelerate. An extraordinary extended period of loose monetary policy in the United States should start to normalize.
- Mid-single-digit returns for the S&P 500.Stocks, we believe, will not collapse, as many think, or soar, as many hope, but may offer near historical routine returns. Earnings may start to normalize, and oil markets should find their equilibrium. International markets may re-emerge as a more viable investing opportunity. But we are still in the second half of the economic cycle, and investors need to be vigilant about monitoring pockets of volatility and potential signs of an economic downturn.
- Limited returns for bonds. The year as a whole may look similar to 2015, with bond prices facing the challenges of high valuations, steady economic growth, and the prospect of interest rate hikes. Still, bonds play a vital role in investors’ portfolios to help with risk mitigation and diversification.
View the complete Outlook 2016: Embrace the Routine.
This research material was prepared by LPL Financial, Member FINRA/SIPC.
The opinions voiced in this material are for general information only and are not intended to provide or be construed as providing specific investment advice or recommendations for any individual security. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results. All indexes are unmanaged and cannot be invested into directly.
Economic forecasts set forth may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
All investing involves risk including loss of principal.
 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.
 Historically since WWII, the average annual gain on stocks has been 7–9%. Thus, our forecast is 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 (PE). Earnings gains are supported by our expectation of improved global economic growth and stable profit margins in 2016.