By Gary Smith
By Gary SmithThe S&P 500 Index 2016: What are the experts predicting for this year?
Oil’s continued slide, a steady trickle of interest rate increases and sluggish global demand: for the majority of the sectors that make up Standard & Poor’s 500 Index, these are likely to be the three most significant features on the trading landscape in 2016.
Here, we consider the experts’ outlook for the S&P 500 as a whole. We also take a closer look at key sectors for early indications of who the winners and losers are likely to be this year.
Why should binary options traders look at the S&P 500?
Consisting of both New York Stock Exchange and NASDAQ-listed stocks, the S&P 500 is configured to include the top 500 common stocks with the largest capitalisation traded in the United States.
Rather than individual stocks, there are many binary options traders who choose indices such as the S&P 500 as their underlying trading assets. These traders tend to prefer a broad brush approach; focusing on the macroeconomic fundamentals and performance of economies as a whole and minimising the risk of being taken unawares by unpredictable developments relating to specific companies. Here, the S&P holds particular appeal as an underlying asset; it is the most followed index in the world and valuable trading information relating to it is widely available across the financial media.
Even if you do not include the S&P 500 in your list of trades, it’s still worth having it on your radar. This weighted, committee-selected index provides a handy representation of the health of US businesses and the US economy. In short if your assets are traded in or exposed to US markets, the S&P 500 is worth knowing about.
S&P Index; The big picture for 2016
Just a couple of months ago, it was possible to find bullish predictions for the S&P’s 2016 prospects. Back in November, when the index was hovering around the 2,000 to 2,100 mark, strategists were predicting a year of slow and steady consolidated growth, with a suggestion from UBS that the index would finish the year at around 2,275. In short, it was thought that an absence of “excessive valuations, irrational exuberance or signs of a recession” meant that there was room for modest optimism.
But the new year began on a worrying footing, with the first six days of trading seeing the S&P 500 fall in value by six percent. Very recently, this has led Societe Generale strategist, Albert Edwards to suggest that the index could be already in a bear market situation and that if this plays out, the benchmark could fall by as much as 75 percent from its recent 2,100 peak to trade around 500 before rallying.
Meanwhile, providing further evidence of negative sentiment, Goldman Sachs has recently cut back its S&P 500 earnings per share (EPS) forecast for the upcoming year. This has been cut by $3 to $117 per-share for 2016, with Goldman stating that the energy sector is the main driver of this pessimism.
When surveyed recently by MarketWatch, the consensus of opinion of ten analysts was of a 2016 finish of 2,193. This suggests a year of very modest growth, albeit with marked volatility.
S&P 500 key sectors: an overview…
Energy
December saw S&P 500 energy stocks down 23.6% on the year, making this the worst performing sector. With Brent Crude falling below the $30 per barrel mark earlier this month, this sector continues to face extremely tough conditions.
Materials
Gold, silver and copper all saw six-year lows in 2015 in the face of weak global demand. Big losers included S&P mining and metals companies such as Freeport-McMoRan and Alcoa. The landscape remains challenging; for instance, Freeport-McMoRan very recently saw its stock plunge by 4.64 percent in response to the most recent downward spike in oil and copper prices.
Many of these companies have been busy streamlining their processes and trimming excess fat over the last 18 months or so to best weather the storm. Look for evidence that commodities are bottoming out as an indicator that share prices in this sector will start to climb again.
Industrials
This was another losing sector in 2015, with the likes of Caterpillar, engine maker Cummins and truck maker Paccar all seeing their share prices down on the year. Much of this was down to sluggish global demand, especially from China. Look for evidence of an improving picture across the emerging economies and Europe for indicators that the exports arms of these companies are going to be able to get back on track.
Utilities
Because they tend to pay steady dividends, these stocks tend to be regarded by investors as useful income generators. If they feature in your trades, be aware that their attractiveness to investors may start to fade if and when the Fed’s process of hiking interest rates gathers pace and cash products start to draw investors in.
Consumer and IT
These sectors were the big winners of 2015; Netflix and Amazon were the only two S&P 500 companies who saw their stock prices double last year. The likes of gaming houses Activision and Electronic Arts had a good year – as did Microsoft and Facebook.
For healthy sales figures and, by extension, rising stock prices, companies within these sectors rely on a confident consumer base with disposable cash. Although the immediate outlook here looks broadly positive, look for any suggestion that interest rate rises and/or a less buoyant labour market are dampening consumer spending power. These trends could start to put downward pressure on stocks linked to these sectors.
Looking to expand your trading portfolio to include US stocks and indices this year? Check out our reviews of the best binary options brokers.
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Read More; What will impact Oil Prices in 2016?
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