by Bill O’Grady & Mark Keller | PDF

In this report, we will offer our outlook for the upcoming year.  Twenty-sixteen could be an interesting year—presidential elections will be held, the Federal Reserve could tighten monetary policy and the geopolitical landscape will likely remain complicated.  We will begin the report with our base case for the economy, equities, debt markets, the dollar and commodities.  From there, we will examine the “known unknowns,” which could undermine our base case.

Summary: Our Base Case

• No recession in 2016.
• Slow economic growth, low inflation.
• An S&P 500 of 2214.39, based on earnings of $121.67 and a P/E of 18.2x. If our forecast undershoots the market, it will likely be due to further multiple expansion.  We would only consider foreign developed for risk-tolerant accounts and continue to avoid emerging equities.
• The 10-year Treasury yield should be in a range of 1.90% to 2.25%. Corporate spreads should contract.
• We expect the dollar will remain strong and commodity prices will be weak.

Our Key “Known Unknowns”

• Monetary Policy
• The Global Economy
• The Upcoming Election
• Geopolitics

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