Looking ahead to the New Year’s Winners and Losers

Setting up a Successful 2015

The clock is running out on 2014, and though the fireworks in the market courtesy of the Fed’s signal on interest rates aren’t over yet, now is the time to start really thinking about how to be successful in the year ahead.

Given that there are only 12 more days left in 2014, I think now is the best time to start contemplating what’s really going to affect markets in 2015.

Here’s my shortlist for things to ponder about the markets during the holidays.

First, in 2015, I think there is one key factor that will ultimately influence the fate of stocks around the world, and that is the return, or lack thereof, of global growth. If Europe, China and Japan fail to really start improving in terms of economic growth, then I suspect that the global economy and global stocks could be in big trouble.

The lack of growth will be a big negative for international stocks, but ultimately it will also weigh on U.S. equities, as the world is just too intertwined these days. If there is another setback for global growth, all stocks — even U.S. stocks — are likely to get whacked. Conversely, if global growth improves, that rising tide is likely to lift all equity boats.

Second, what is going to happen with interest rates in 2015? The 10-Year Treasury note now has a yield of just 2.17%. Now that the Federal Reserve has explicitly said that it will exercise “patience” when it comes to any interest rate increases going forward, what will the debt markets look like?

Will a slowdown in global growth, as well as the deflationary influences of sliding oil and commodity prices, keep interest rates from normalizing? If rates don’t start to rise, or if they were to go lower, then this will be yet another indication that the global economy is slowing.

Finally, I want you to look to last year’s losers as next year’s potential winners. History tends to repeat itself. But in the markets, history tends to switch sides. Energy stocks have been battered on those falling oil prices, but is that setting us up for a potential buying opportunity going forward in the space?

The volatility we’ve witnessed in sectors such as energy, with the chart above of the Energy Select Sector SPDR (XLE) as an example, has been intense. But I don’t think that volatility is over yet for energy — or for the rest of the markets.

A look at the chart here of the Vanguard Total Market VIPERs (VTI) shows that although stocks have made a pronounced move to the upside this year, that move has been accompanied by some pretty violent bouts of selling.

January, April, July, September, October and December all witnessed sharp pullbacks this year, with the most severe being the correction we had in early October.

I am of the opinion that the unknowns of global growth and the fate of interest rates in the year ahead will create much more volatility than what we saw this year. What this means is that in 2015, you’ll have to be prepared for increased volatility, as well as even more market scares like the one we experienced in October.

So, how will you prepare for this volatility, and how do you get ready to tackle the markets in 2015?

One way to do so is to check out my new website, ETF University, or simply ETFU.com.

One feature there that I am especially proud of is our brand new podcast, which provides insights on tactics and strategies that you can use to take advantage of whatever the market throws your way.

I encourage you to check out the new ETFU.com, and the latest podcast, right now. After all, the clock is running out on 2014, so don’t be unprepared when the New Year’s baby arrives.

Rocking with Janet

Said, woman, take it slow
It’ll work itself out fine
All we need is just a little patience

–“Patience” by Guns N’ Roses

We all know patience is a virtue, but who would have thought that a little from Fed Chair Janet Yellen would translate into a 4.5% spike in the S&P 500 in just two trading sessions? Maybe rock band Guns N’ Roses got it right — maybe all we need is just a little patience.

Wisdom about money, investing and life can be found anywhere. If you have a good quote you’d like me to share with your fellow Weekly ETF Report readers, send it to me, along with any comments, questions and suggestions you have about my audio podcast, newsletters, seminars or anything else. Ask Doug.

In case you missed it, I encourage you to read my e-letter column from last week about being prepared for the falls in oil and interest rates. I also invite you to comment in the space provided below.