“It’s tough to make predictions, especially about the future,” quipped the great Yogi Berra. Nevertheless, it’s important to observe market forces and capitalize on future trends.
To that end, I assembled a short list of mega investment themes for investors to watch for in 2016 and the ETFs that reflect those themes.
An Active Federal Reserve
It’s widely presumed that during presidential election years the Federal Reserve is inactive when it comes to making major changes or decisions to monetary policy in order to avoid the perception of being politically motivated.
Contrary to popular views, the Fed has indeed been quite active during presidential election years. The 10 presidential election years since 1976, the Fed has left interest rates virtually unchanged only twice during – in 1996 and 2012.
Looking ahead to 2016, don’t let the presendital election year trick you into falsely believing the Fed will stay docile and inactive. The historical record shows that when it comes to making major monetary decision adjustments, the Fed doesn’t let politics get in its way. And with the cycle of interest rates now heading up, it will have a profound impact on all asset classes – especially bonds with long-term maturities.
Since 2011, global commodity prices have fallen five consecutive years. And the GreenHaven Continuous Commodity Index Fund (GCC), a broad measure of the group, is coming off its worst yearly performance since 2011 with a loss near 18%. Although the energy sector contributed to most of the losses over the past 12-months, agriculture (DBA) and precious metals (GLTR) are stuck in multi-year bear markets.
Trends don’t last forever and the strong dollar/weak commodities theme will eventually cease to exist. Any type of sustained stabilization in commodity prices, particularly oil, would be an early sign market dynamics are changing.
For patient bottom feeders, equity sectors tied to commodities like energy (XLE), miners (GDX), and natural gas (FCG) will offer upside potential. The darkest hour is right before dawn and right now the commodities group is awfully dark. But this too shall pass.