U.S. and emerging markets stocks expected to outperform developed international markets amid moderately higher interest rates, a stronger dollar and heightened volatility.
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SAN FRANCISCO--(BUSINESS WIRE)--The divergence in economic growth and monetary policy between the United States and other developed countries is likely to be a key factor impacting financial markets in the year ahead, according to the “Schwab 2015 Market Outlook” report released today.
As the U.S. Federal Reserve moves toward an interest rate hike while other central banks work to stimulate their economies, Schwab’s experts believe U.S. stocks will to continue to outperform broad international indexes. Higher-quality bonds are also expected to continue to perform well.
The 2015 outlook was presented by market experts from the Schwab Center for Financial Research at Schwab’s inaugural Market and Wealth Outlook event, held today in New York. The panel included Liz Ann Sonders, Chief Investment Strategist, Randy Frederick, Managing Director of Trading and Derivatives, Jeff Kleintop, Chief Global Investment Strategist and Kathy Jones, Fixed Income Strategist.
The Schwab Center for Financial Research team shared the following key views for 2015:
- U.S. secular bull market to continue to run: While the secular bull market is likely in a mature phase, Sonders notes that investors remain skeptical and euphoria hasn’t set in despite the 240% total return for the S&P 500 since March 2009. That means the “wall of worry” stock prices like to climb remains intact, and the bull market will continue. Interest rate uncertainty as the Fed moves toward an initial rate increase could spark some market volatility, but Sonders notes that Fed tightening cycles have not upended bull markets historically.
- Global markets expected to deliver another year of gains: Supported by slightly stronger global economic growth, central bank stimulus and supportive fiscal policy, Kleintop expects global stocks to rise again in 2015. He is particularly bullish on emerging market stocks due to attractive valuations, and anticipates they will outperform developed international stocks. One indicator Kleintop will be keeping a close eye on is the U.S. current account, a broad measure of trade and money flows in and out of the country, which after improving steadily in recent years, has recently flattened out and may be on the verge of a change in direction. A worsening current account has a solid track record of signaling when international stocks may outperform U.S. stocks, according to Kleintop.
- High-quality bonds to continue to perform well as Fed tightens: The focus of attention in the fixed income markets is likely to be on the Federal Reserve’s move towards tighter monetary policy, according to Jones, who expects an initial rate hike mid-year. As the Fed shifts policy, Jones anticipates moderately higher interest rates and a continued rise in the dollar. Jones also expects increased volatility in the fixed income market, which could lead riskier sectors of the market such as high-yield bonds, bank loans and emerging market bonds to underperform. Higher quality bonds like Treasuries and investment-grade corporate and municipal bonds should continue to perform well, she says.
- Traders can expect a strong start to 2015: The S&P 500 is on solid ground and could log new record highs before the end of the year, according to Frederick, and a strong year-end will likely carry into January, In fact, Frederick highlighted that in the last 28 years that stocks gained ground in December, they also closed higher the following January in 20 of those instances, While the next few weeks could also usher another small pullback or two, Frederick says traders should view them as buying opportunities.
Schwab’s full 2015 economic and market outlook can be found at www.aboutschwab.com/press/research.
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