Each January, Money Talks News peers into the future. Here’s what we heard this time around, from the amateur on Main Street and the professionals on Wall Street, about what to expect for 2016 in the key sectors of stocks, housing and oil.
(Also, just for fun, check out how well the experts and amateurs did when calling the shots at this time last year: “Wall Street versus Main Street: Who Got It Right in 2015?“)
The stock market
The amateur: Stocks will rise 5 percent, predicted our man on the street, speaking to Money Talks News founder Stacy Johnson.
The experts: Many analysts say stocks are overpriced, having tripled in value since 2009. They also point to international tensions, particularly in the Middle East, and to the slowing of China’s powerhouse economy, for the market’s subdued performance as 2015 came to a close.
Ten strategists surveyed by Barron’s in early December expressed caution and predicted moderate gains for the market in 2016. Although they forecast a 10 percent increase in the S&P 500 Index, that prediction is not as optimistic as it first appears, as the Barron’s article explains.
Based on their mean forecast, the Standard & Poor’s 500 index will end next year at 2220, an increase of 10% from [the Dec. 11] close of 2012. An advance of that magnitude is more reflective of the market’s rout last week, however, than undue exuberance among our prognosticators. To the contrary, the strategists were more cautious in their comments than in recent years past.
Heading into the new year, financial experts across the spectrum used words like “choppy,” “wobbly” and “volatile” to describe their expectations of the market. As if to prove it, the Dow fell 275 points when the markets opened on Jan. 4 for the first day of trading in 2016.
Stocks: The back story
In 2015 the stock market was essentially flat. The Dow Jones Industrial Average closed the year at 17,425 — a 2.2 percent loss. The S&P 500 Index closed at 2,058, for a 0.7 percent loss. It was the worst market since 2008.
Here’s what a really good year looked like for investors: In 2013, the Dow Jones index closed the year with a 26.5 percent gain. It was the biggest increase in 18 years. The S&P 500 index rose 29.6 percent, breaking a 16-year record. Don’t expect a repeat performance any time soon.
The amateur: Oil prices will average about $29 a barrel in 2016.
- Bloomberg News reports that Saudi Arabia appears to be basing its 2016 budget on $29 per barrel oil prices. That puts the expectations of the global oil-producing giant right in line with our amateur’s prediction.
- The Energy Information Administration, however, expects oil prices to average about $51 per barrel in 2016.
There’s no hard-and-fast correlation between the price of oil and that of gas at the pump, but AAA spokesman Michael Green told us this rule of thumb: “Every $1 change in the cost of crude oil can move gas prices by about 2.4 cents per gallon.” The average cost of a gallon of regular gas on Jan. 4, 2016, was $1.99, according to AAA’s Daily Fuel Gauge Report. Also on Jan. 4, crude oil cost about $37 a barrel.
Today, gas is cheaper than at any time since March 25, 2009. The U.S. Energy Information Agency predicts gas prices will rise in 2016, but only a smidgen, from $2.04 a gallon in December 2015 to a monthly average of $2.36 a gallon in 2016.
Consumers aren’t getting the full benefit of the extraordinary drop in oil prices: When oil dropped 50 percent in 2015, pump prices fell just 28 percent. Experts list several reasons for that, including:
- Oil refineries are holding onto more profits.
- Gas prices rise and fall in part due to consumer demand.
- It can take three to six months for crude oil to flow through refineries and into the gas pumps, delaying the effect of falling costs for consumers.
Oil: The back story
The world is awash in oil today. The glut pushed prices so low that industry analysts at Goldman Sachs wrote a paper about “The New Oil Order.” In other words, they think the change is likely to be permanent.
What’s behind the big drop in prices? Well, one word accounts for much of it: fracking. This newer technology, used to extract oil deposits from shale, has “resulted in substantially increased domestic production and a fundamental reorganization of the global energy hierarchy,” Goldman Sachs experts say.
The amateur: Our man-on-the-street predicts that home prices will rise: “Hopefully they’ll go up like 8 percent.”
The expert: Housing analysts agree that house prices will keep on rising, but 8 percent is an optimistic prediction. Home prices could rise 4 or 5 percent, predicts CoreLogic’s chief economist, Frank Nothaft.
The economy will continue to grow modestly, by 2 or 3 percent this year, says CoreLogic, which publishes data on housing and financial markets. Mortgage interest rates will creep slightly higher, perhaps to 4.5 percent for a 30-year-fixed rate home loan by the end of the year, Nothaft says. That, incidentally, still is an ultra-low price for a mortgage. He predicts that sales of homes and demand for rentals will remain strong.
Housing: The back story
The key word affecting the housing market today is “affordability.” Wages are rising, but only a little, and increasingly, Americans are being priced out of the market for buying a home.
Adding to the pressure, mortgage interest rates are likely to rise now that the Federal Reserve has stopped supporting low rates. Home prices grew 5.2 percent, overall, between October 2014 and October 2015, according to the latest S&P/CaseShiller Home Price Indices data.
One possible answer to affordability problems: Online real estate marketplace Zillow predicts that “a lack of affordable homes near city centers will push new and first-time homebuyers to (cheaper) suburbs that feel like walkable, amenity-rich mini-cities.”
Rents, which have grown rapidly in the last several years, still are increasing but perhaps a bit more slowly. In early November 2015, rents were rising 4.5 percent a year compared with November 2014, according to Zillow. That’s down from the 5.3-percent growth rate in the previous quarter.
What’s your outlook for 2016? Share your predictions in comments below or on Money Talks News’ Facebook page.