8 Predictions for 2015: Part II
*Editor's Note: Did you miss part I? Get up to speed with a look back at 2014.
Well, according to the National Retail Federation, Black Friday retail sales numbers stunk to high heaven.
Six million fewer Americans hit the stores, and spending dropped 11% over last year. Since Thanksgiving, consumers spent $50.9 billion on stuff they may or may not need. That was down from $57.4 billion last year.
Online sales, meanwhile, were up 15% to $22.7 billion.
What's going on? More people have jobs, and lower gas prices have put more coin in our pockets. And with the savings rate around 5%, we have the loot. So why aren't we spending it?
The National Retail Federation says the average spending per person was down 6.4% over the weekend to $380 bucks.
Maybe Americans have rethought their profligate ways after the financial crisis. I'd love to think we're seeing a backlash against stores opening on Thanksgiving. Personally, I find that practice completely repugnant.
I mean, Thanksgiving is a family day to be spent with loved ones. Any retailer that demands its employees forego a day with family and friends in order to make $12 an hour selling crap to bargain hunters is downright un-American.
Of course, another measure of retail sales — this one determined by a ShopperTrak survey — shows that sales were only down 0.5%. In fact, online sales were up 32% on Thanksgiving and 25% on Black Friday.
I still expect this holiday season to be a good one spending-wise. And if you want to pick up some J.C. Penney (NYSE: JCP) shares below $8, I think we could see $10 or $11 sometime soon.
Anyway, moving on...
Last Wednesday, I started a two-part series about my predictions for 2015. Last week, we looked at how my 2014 predictions did.
Today, I'm ready to go out on a limb for 2015.
1. We will see three 0.25% interest rate hikes. The Fed has no choice but to hike interest rates. The Fed Funds rate has been too low for too long.
However, the Fed is not likely to go on a prolonged rate hike campaign a la Alan Greenspan in 2003–2004. Ultimately, interest rates may rise to the ~3% range by the end of 2016, but it's going to be a while before we see the Fed Funds rate back above 4% — and we may never see that again.
Banks will be a big beneficiary of rate hikes. You are probably well aware that I am bullish in Bank of America (NYSE: BAC). My Wealth Advisory subscribers are up around 80% on this stock since I recommended it at $9.40. REITs will also remain attractive, but other interest rate-sensitive stocks, like utilities, will underperform.
2. Oil prices capped at $85. It is unlikely that global demand for oil will make a big jump higher. And so the only real catalyst for oil prices is production cuts. Because of relatively high debt loads from investment, we do not expect significant production cuts in the U.S.
That leaves OPEC. OPEC is likely to cut production in the first half of 2015, but such action will not push prices back above $100. The share prices of U.S. oil stocks are attractive now.
3. 2015 U.S. GDP growth will be between 3% and 3.5%. After a strong finish to 2014, growth will stall a bit for 2015. The strong U.S. dollar and weakness in Europe, Russia, and South America, combined with a slowing Chinese economy, will once again keep a lid on growth.
The strong U.S. dollar is going to be a very important story in 2015. Multinational companies will suffer a small decline in earnings due to it, and Caterpillar (NYSE: CAT) in particular could suffer.
4. S&P 500 hits 2,275, but volatility increases. For the last couple of years, the stock market has been a one-way trip higher. That changes in 2015. Stock prices will be much more volatile. It will still be a “buy the dips” market, but the dips will be bigger. Don't be surprised if we see at least two 8%-10% corrections.
Still, on balance, it will be another good year for stocks. The U.S. remains the most attractive market in the world, and the strong U.S. dollar should attract more global investment. My target for the S&P 500 is 2,275 based on S&P 500 earnings of $127 a share.
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5. Gold prices stuck between $1,100 and $1,300. Look for a gold rally early in 2015 that sends small gold stocks soaring. Unfortunately, the prospect of higher interest rates and a strong U.S. dollar will keep prices contained.
6. Tech stocks will lead the S&P 500. In 2014, health care and utilities were the strongest sectors in the S&P 500. In 2015, tech will lead, while utilities and consumer discretionary underperform. Given how far energy stocks have fallen, they could be due for a nice bounce once oil prices stabilize, and solar stocks should perform well, too. Financial stocks should also do well as interest rates rise, but I remain bearish on social media stocks.
7. The Russian economy collapses. Without a doubt, my forecast of a crisis coming from Russia was my best call for 2014. And it ain't over yet. Vladimir Putin is playing a very dangerous game with Ukraine. Sure, he's extremely popular in Russia, but the Russian economy has only begun to tank.
Will he remain popular when the Russian economy really goes into recession? Will the oligarchs get sick of losing money because of Putin's confrontational stance and take him out mafia-style? I don't have the answer. But oil prices below $80 will crush the Russian economy and make Putin more desperate. This isn't going to end well.
8. No crash for China. For years, stock market prognosticators have predicted a crash for the Chinese economy. I don't think it's going to happen, and that's because it's not a free market.
It seems to me the Chinese Communist Party can keep printing money and covering the economy's problems as long as it wants. You can't buy or sell the yuan on the open market, so there's no real system of checks and balances on China's leaders. You can make money shorting China when the time is right, but don't bet on a collapse.
There you have it — my best guesses for 2015. The big takeaway should be that U.S. corporations and the U.S. stock market will continue to perform well.
Until next time, Briton Ryle A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
Until next time,
A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
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