Worst Annual Start for the Stock Market on Record - Where Does the Opportunity Lie?
After posting its worst annual loss since the 2008 financial crisis, U.S. stocks have continued to stumble in 2016. The S&P 500 Index dropped 0.7 percent in 2015, snapping a three-year streak of double-digit gains for the Index. This year plummeting oil prices, which have fallen below $30.00 a barrel for the first time since 2004, and China’s economic slowdown has pressured the S&P 500 Index to its worst start on record. The S&P 500 Index dropped 8.0 percent during the first 10 days of the year and is down roughly 7.5 percent year-to-date.
“The market’s move is a reaction to continued pressure on Chinese equities, continued weakness in oil and softer than expected economic data in the U.S,” said Howard Ward, Chief Investment Officer of growth equities at Gamco Investors Inc. “That said, the selling is indiscriminate. Every sector and nearly every stock is under real pressure. Across the board selling, in other words. No place to hide.”
Oil prices have fallen approximately 20.0 percent in 2016 largely due to the recent economic struggles in China, the world's second-largest oil consumer. Recent data has shown China’s economy grew by just 6.9 percent in 2015, the slowest pace since 1990. The current economic slowdown in China has begun to raise some major demand concerns for oil as the nation accounts for roughly 12.0 percent of world’s crude consumption. A recent study by Energy Security Analysis (ESAI) forecasts China’s oil demand to shrink by almost 60 percent from 2015 to 2030, when compared to 2000 to 2015.
It is no coincidence that the oil and U.S. stock markets have moved in tandem in 2016. Data analyzed by The Wall Street Journal show that in the last one-month period the correlation between Brent crude oil prices and the S&P 500 Index is 0.97 (a reading of 1.0 would mean oil and stocks always moved in lockstep, where -1.0 would mean that the two moved opposite of each other), the closest it has been in a 1 month period over the last 26 years.
Here are Four Industries/Sectors Research Driven Investing Recommends Taking a Closer Look at in 2016
The Airlines Industry has been a major benefactor of plummeting oil prices as lower fuel costs simply equal higher profits for the industry. The International Air Transport Association (IATA) forecasts a record profit of $36.3 billion for 2016, an increase of 10.0 percent when compared to $33.0 billion a year ago.
Southwest Airlines recently reported a record profit for the fourth quarter and full year 2015, largely to due cheaper fuel costs. Analysts at Deutsche Bank have recently upgraded the company to a “buy”. “Our fourth quarter 2015 economic fuel costs per gallon were $2.03, a decline of 22.5 percent from fourth quarter 2014, resulting in a reduction of $189 million in economic fuel costs, year-over-year.” stated Gary C. Kelly, Chairman of the Board, President, and CEO of Southwest Airlines.
There is no denying that some of the largest profit makers have come from the Biotech Industry in recent years. Over the past 5 years the iShares NASDAQ Biotechnology Index ETF (NASDAQ: IBB) has gained approximately 200.0 percent, far outpacing the S&P 500 Index rise of roughly 48.0 percent. Some companies in the Biotechnology Industry may have been oversold in recent months as investors have dumped their higher risk investments as confidence began to wane in the overall markets.
Gilead Sciences, Inc.’s portfolio pipeline of investigational drugs includes treatments for HIV/AIDS, liver diseases, cancer, inflammatory and respiratory diseases, and cardiovascular conditions. Gilead’s SOVALDI is a prescription drug used in combination with other antiviral medicines for the treatment of hepatitis C genotype 1, 2, 3, or 4 infections in adults. During the first half of 2015, Medicare spent $4.6 billion on Hepatitis C treatments, nearly equal to 2014’s entire total.
One sector that has held steady despite the volatile markets has been Technology. According to the Chicago Board Options Exchange Volatility Index (VIX), since August tech stocks have seen the largest decline volatility, followed closely by consumer staples. Additionally, research from WisdomTree Investments, Inc. show that the Information Technology Sector’s dividends have grown by an astounding 270.0 percent since November 30, 2007.
Shares of Facebook Inc. have fallen approximately 8.0 percent year-to-date, but are up nearly 30.0 percent in 2015, compared to a 0.7 percent loss for the S&P 500 Index. Facebook still has many growth opportunities in the mobile and virtual reality space. Facebook’s Oculus Rift, a head-mounted virtual reality display, is expected to begin shipping in March at a price tag of approximately $600.00. SunTrust forecasts sales of 3 million units this year, equating to revenues of nearly $1.8 billion.
Investors have historically flocked to gold as a safe haven in times of economic uncertainty. In the first week of 2016 prices for the precious metal spiked 4.5 percent, while the S&P 500 Index dropped 5.96 percent. Investors have put roughly $1.0 billion into precious metals ETFs during the first three weeks of January, the largest monthly expansion in a year, according to data collected from Bloomberg.
Barrick Gold Corporation is a gold mining company with operations in Argentina, Australia, Canada, Chile, Dominican Republic, Papua New Guinea, Peru, Saudi Arabia, United States and Zambia. Barrick produced 6.12 million ounces of gold last year with expected all-in sustaining costs in the range of $830.00 to $870.00 per ounce. At the end of 2014, the company reported gold reserves of 93.0 million ounces, and measured and indicated gold resources of 94.3 million ounces. Over 75.0 percent of Barrick’s gold productions come from their operations in the Americas region.
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