The new year is upon us, and there’s been a major shift in the world’s stock markets. Earlier in the year, the stock market seemed to struggle, but new economic growth in the United States helped alleviate much of this pressure.
When China’s economy started to falter, it showed just how volatile the markets can be.
The apparent gap between Federal Reserve and the European Central Bank has also caused the markets to act erratically in Q4. It seems as if the markets are starting to balance themselves out, at least in the United States, but there are some market that you’ll want to avoid in 2016 – at least in Q1 and Q2.
1. Oil is Plunging Fast
Oil prices have been so erratic this year that it seems unwise to invest in oil. OPEC decided not to cut down on production and has been outproducing in hopes of maintaining market share. A recent report just released seven hours ago indicated that demand for oil is rising as a result of cheaper prices.
The major issue is that unless OPEC does cut down on its supply, prices will continue to suffer. Oil prices are projected to plunge between $20 and $30 a barrel in 2016, but OPEC is positive that oil will rebound in 2020 to reach $70 a barrel. The organization also forecasts that oil prices will rise to $95 a barrel in 2040. This is still far less than the $145 a barrel witnessed in June 2008.
With alternative energy choices on the rise, investing in oil may not be a smart long-term decision, depending on advancements in the market.
2. Avoid Utility Stocks
Utility stocks have been lackluster in 2015. Long-term interest rates are rising, and stronger economic growth will further hinder utility stocks in 2016. The Federal Reserve’s first interest rate hike in nearly a decade will further cause utility stocks to struggle in the coming year.
Utilities SPDR (XLU) is a prime example of an ETF that contains many major utility stocks.
The ETF is performing well today, up 1.14%, but it’s down 6.9% on the year. Utility stocks simply aren’t gaining enough traction in Q4 2015 to justify investing in them in the first half of 2016. Conditions may change, and utility stocks may rise again, but this is all hypothetical at this point.
3. Gold is Too Risky
Gold, in the long run, will eventually increase in price. Currently, gold is acting rather sporadic. The gold metal hit a six year low with prices around $1,050 an ounce following the Federal Reserve’s decision to increase interest rates, but has since rebounded.
Many analysts predict that gold prices will fall to under $1,000 an ounce in Q1 and Q2, and a second interest rate increase would likely cause the present prices to tumble further.
It is very tricky situation with gold because the Federal Reserve may also decide that they will increase interest rates slowly if the economy becomes sluggish due to external factors. If the USD does falter in the beginning of the 2016 year, gold prices may also rise up to highs of $1,150, according to Credit Suisse.
If you’re going to be buying gold as an investment, I recommend waiting until prices hit $1,000 an ounce as is forecasted.