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Readers’ 2015 Market Forecast: Modest Gains, More Volatility

By Adam Zoll, Morningstar

Any time you ask investors to predict how the market will perform in the coming year, you are likely to get responses that fall roughly into one of three camps: those who expect an overall positive year for stocks, those who expect stocks to lose ground, and those who think the question itself is an exercise in futility.

But regardless of what one predicts, or what one thinks about the wisdom of making predictions, asking investors how they feel about the coming year can be useful as a gauge of investor sentiment. We asked readers on our Market Insights discussion board to look into their crystal balls and tell us what they see for the stock and bond markets in the coming year. Some offered specific predictions while others were less willing to be pinned down to specific numbers. As might be expected, many posters homed in on factors that are currently affecting the markets, including the recent plunge in oil prices, deflation concerns in Europe, and ongoing speculation about if and when the Fed will raise interest rates. Others pointed out that unknowable events of one kind or another–natural disasters, political unrest, and the like–are sure to play a role as well.

Last January we conducted a similar exercise, with readers on average predicting 2014 gains of 6.5% for the S&P 500 Index of large-company stocks and a barely positive Barclays U.S. Aggregate Bond Index. Both estimates undershot the indexes’ actual performances for the year by six to seven percentage points (the S&P 500 ended the year 13.7% higher, with dividends included, while the Aggregate Index added 6%). It’s a reminder not only about how hard it is to predict the markets, but also that the markets sometimes provide surprises to the upside and not just the downside. Now, on to some of this year’s predictions, all of which can be found here.

Great Returns … Less-Stable Conditions

Among the most common predictions was a continuation of 2014’s trends, with U.S. stocks faring reasonably well while foreign stocks remain stuck in the mud. The consensus 2015 prediction for the S&P 500 among our small sample size was a gain of 5.5%, while the few readers who offered a prediction for the performance of the Barclays U.S. Aggregate Bond Index all said they expect a 5% to 6% gain.

Comments made by tominvest were typical. He wrote, “In 2015 I believe that the S&P 500 will gain about 9% (including dividends) and that the Barclays Aggregate Bond Index will add about the same 6% as it did in 2014. The S&P 500 will continue to experience several 2% to 3% bounces throughout 2015.”

AndrewXnn had an even rosier prediction for stocks this year.

“The S&P could gain 10% with a 2% dividend that will give a total return of 12%,” he said. “Barclays Agg Index could also gain another 6% next year. The problem is that some of this will be from lowering long-term interest rates (trending towards those of Europe) and expanding multiples for the S&P. In other words, great returns but moving both markets towards less-stable conditions. Remember, this is the third year of a presidential term, which is almost always positive.”

Reader lionsgate also expects strong performance from stocks this year but warned that things could get rough toward the latter half.

The commenter wrote, “Last year’s crystal ball predicted a stock melt up–growth would return and up we’d go. That prediction was off by one year. The market will be a surprise in 2015, rocketing higher before moderating and coming back to earth in the third quarter. Ride the magic carpet through August, then take some money off the table and stick it in your pocket.”

Several readers said they think the market’s recent volatility will continue well into the new year. Festus said he sees the S&P 500 adding 8% to 10% in 2015, adding “however it will probably be a bumpy ride! Think long term and hold on.”

Some said they expect 2015 to look very much like 2014 did.

“I expect more of the same,” said Pangborn. “Interest rates dragging the bottom, average-to-poor job creation with part-time jobs leading the way, more good stock performance, but with unpredictable and unexplainable panic sell-offs and volatility.”

‘U.S. Will Feel Some Pain From Foreign Markets

For BMWLover, U.S. stocks look like they’ll be a strong performer again in 2015, at least as compared with other markets. “I think the U.S. will feel some of the pain from the [foreign] markets, like Europe and Japan,” the commenter said, “but in the end we’ll again be the shining light as the rest of the developed world works through the problems they ignored over the past few years.” BMWLover predicted a return of about 5% for the S&P 500 Index on the year.

But not everyone was convinced 2015 will be another good year for stocks as the current bull market nears the six-year mark in March.

Rohit33410 predicted that “U.S. stocks will be down 5% for the year. The rest of the world will correct further, in part based on some event–whether it’s Greek bankruptcy or Russian adventures or some oil-related crisis. High-quality bonds will continue to be a safe harbor both because of possible world events and because interest rates [in the rest of the world] are even lower.”

Reader srercrcr also had a more negative outlook for the year, including a prediction of global deflation. “The Fed will return to quantitative easing,” the commenter predicted. “Oil-selling countries will face huge budget deficits leading to purchasing cutbacks. U.S. global companies will feel the pain. Depending on the level of deflation in the U.S., revenues may fall more due to buyers putting discretionary purchases on hold.” Srercrcr added, “Yes, I know, this is not your common, everyday extrapolation forecast. Neither was 2009.”

Focus on Oil and Interest Rates

A number of readers pointed to macroeconomic factors as likely drivers of stock performance, in particular the lower price of oil.

“With oil prices low and possibly going further down, this is a good tax break for the consumer,” said mashall. “[The] market will grow at the rate of 6-8% for the year. Most stocks are overvalued but still some are worth looking at.”

Reader Mike2010 had a similar thought. “I’m looking to a Dow Jones Industrial Average of 18,350 before this summer (which would be a gain of 3% over last year’s year-end close),” he wrote. “Still believe the drop in oil per barrel–decreasing prices at the pump–will boost consumer spending and hike the economy. The full impact on consumer spending is still to come.”

TomSanDiego predicted a rebound in oil prices, and modest changes elsewhere.

He wrote, “Oil prices will drop into the low $40s, stay there for two-and-a-half months, and then start a slow climb back to $70 by end of year. Interest rates will rise one half percent. Unemployment will stay the same as current. European stocks will outperform the U.S. market.”

Another reader, fxmulder, predicted a flat year for stocks with increased volatility but added, “The end of the oil war will create a big rally.”

However, mckinm seemed to suggest that the impact of lower oil prices on the markets has been overblown.

“The volatility in the oil industry does not affect the broader U.S. market long term,”mckinm wrote. “Obviously drilling and exploration will be impacted, but not as much as people think. Most of the big players prepare for events such as this and are able to pull short-term projects off the table.”

Another major development sure to have an impact on the stock and bond markets in 2015 is what the Fed does regarding interest rates. Some Fed watchers expect a rate hike as soon as the second quarter of the year, although such a move is by no means a given.

Mckinm, for one, expressed confidence that a rate hike won’t spook the market, or at least not much. “I suspect [the Fed] won’t completely screw up,” the commenter wrote. “Any move they make towards tightening fiscal policy will be met with volatility, but the market will recover in short order as everyone knows an interest-rate hike is inevitable.”

The Market’s Gonna Do What the Market’s Gonna Do

Not everyone responding to our question was willing to venture a guess as to what 2015 has in store for investors. Some readers said they expect 2015 to be like any other year–full of market gyrations and unforeseeable events–and that they expect to stick to their long-term plans.

“My crystal ball informs me that stocks and bonds will likely fluctuate at some unknown frequency and in some unknown direction,” said stagioneestate. “It further informs me that my time is better spent saving like crazy, making sure I have a feasible strategy, and executing it consistently at a low cost.”

FedEngineer may have summed up the sentiment best, writing, “I think that some stocks will go up and some will go down on their own merits, and they will all rise and fall with the tide of the rising/falling market. And overall, I think the market’s gonna do what the market’s gonna do.”

Some comments have been edited for clarity and brevity.

Adam Zoll is an assistant site editor with Morningstar.com