What to Expect from the Markets in 2016 | Fidelity

In this video, Fidelity’s Dirk Hofschire outlines what investors can expect from the markets in 2016. To get the full quarterly market update, visit: https://www.fidelity.com/viewpoints/market-and-economic-insights/quarterly-market-update To see more videos from Fidelity Investments, subscribe to: https://www.youtube.com/fidelityinvestments Facebook: https://www.facebook.com/fidelityinvestments Twitter: https://www.twitter.com/fidelity Google+: https://plus.google.com/+fidelity LinkedIn: https://www.linkedin.com/company/fidelity-investments ------------------------------------------------------------------------------- Hello, I’m Dirk Hofschire of Fidelity Investments. On behalf of my colleagues in the Asset Allocation Research Team, I want to share with you a few of our insights on the latest developments in the market and look ahead to the outlook for 2016. So, let’s put a wrap on the performance last year in the financial markets. It was a pretty lackluster year overall for most asset categories. Big mainstream categories, like large cap U.S. stocks and high quality bonds, actually did better than most others and eked out small positive gains. But a lot of categories were negative for the year, and the biggest laggards came on the international side where commodity prices, emerging market stocks fell due to the deterioration that we saw on the global environment. The big news late in 2015 was the Federal Reserve moving to hike interest rates. It was the first hike in several years and it helped push up bond yields, but it was really the culmination of a process where yields have been moving up across the entire curve for the past several years, especially in the short and intermediate maturities. When we look forward to 2016, the Fed is likely to maintain a relatively gradual pace of tightening because we still have very low inflation as well as a weak global backdrop. So, we don't foresee dramatic increases in interest rates going forward. So the big question for the global economy next year is whether it can withstand this Federal Reserve tightening. On the one hand, the risks are still coming from the emerging market world, most notably in China, which is facing recessionary pressures as a result of excess capacity in the big build-up in credit in recent years. But the good news is you still have developed economies like the U.S. and Europe that continue in midcycle expansion even if they're somewhat slow. The other critical question for next year will be the evolution of the policy backdrop. So, the Federal Reserve is in a tightening mode, but here in the U.S. we actually will probably in 2016 have the most accommodating fiscal policy that we've had in several years. We also have many other countries abroad, especially large economies in Europe and Japan, that have extraordinarily easy monetary policies. And China itself has not only eased on the monetary side but continues to stimulate with fiscal policy and is now easing its currency policy as well. So, for the outlook in 2016, we think it's going to be a difficult backdrop from a global perspective, but we do expect that things are going to stabilize as the year progresses. The U.S. economy, for example, will continue to face some headwinds in the external oriented sectors like manufacturing. But most recently we’re seeing maybe the signs that the worst of the inventory correction is behind us. As you put that together with a strong consumer sector which has bolstered by gains in employment, as well as real incomes, and we think overall the U.S. economy is going to do fine. So, for the markets it could be a volatile year because of all these cross currents, but perhaps still a relatively favorable one for equities. But it definitely will continue to provide a backdrop to see the importance of a well diversified investment portfolio. For more information on our perspectives on the current themes in the financial markets, please see our complete quarterly market update. Thank you. Fidelity Brokerage Services LLC, Member NYSE, SIPC, 900 Salem Street, Smithfield, Rhode Island, 02917 746120.4.0