Stocks have tended to do remarkably well over the year's last five trading sessions.» Read More
Toward the end of 2013, BlackRock's chief investment strategist for fixed income, Jeffrey Rosenberg, predicted that stocks would beat bonds in 2014. Now he says stocks are set to outperform bonds once more—and that poor bond performance will actually make that relatively easy.
From 2014 to 2015, "I think the big difference is really what kind of direction of returns we are talking about in the bond side," Rosenberg (who bears no relation to the writer) said Thursday on CNBC's "Futures Now." "Stocks can beat bonds, and it's a heck of a lot easier when bonds are not delivering the kind of returns they did in 2014."
By reasonable measures, equities indeed did beat fixed income in 2014, as Rosenberg had predicted. However, he did not predict that bonds would perform as well as they did over the course of the year, as rates fell despite widespread expectations to the contrary.
Over the past few years, the market calls made by bullish strategist Tom Lee have proven prescient. Now, he predicts that 2015 will be an even better year for the market than 2014.
"We remain bullish and expect the S&P 500 to reach 2,325 by YE 2015," he wrote in a Thursday morning note to clients.
With the S&P hitting 2,050 on Thursday, a close of 2,325 would represent a rally of more than 13 percent from current levels. That would easily best this year's 10.6 percent rally.
So how does Lee, the current head of research at Fundstrat Global Advisors and former equity strategist at JPMorgan, reach that target?
"What we're picturing is that earnings growth is around 7 percent or better, and we see the P/E expand," meaning that investors will pay more for each dollar of earnings even as earnings rise, he explained Thursday on CNBC's "Futures Now."
The reason this is a surprising take is that market valuations have already risen considerably, such that the S&P's forward price-earnings ratio is now a bit above historical averages. But that doesn't worry Lee.
"I know people are going to say, 'Hey, the P/E expansion's over, because we're already six years in and the market's at 16 times forward [earnings].' The reality is, if you look at every bull market that's lasted at least four years P/Es expand more than one turn a year until the bull market peaks," he said. "Hey, the market feels expensive, but the P/Es' going to keep going up until there's a recession."
Oil's swift and sudden decline is just the latest Federal Reserve-induced bubble to pop, and if history is any indication, stocks and real estate could soon follow, according to Euro Pacific Capital's Peter Schiff.
"If oil prices are artificially inflated by the Fed, so are stock prices and real estate prices," he told CNBC.com's Futures Now.
Crude has lost almost half its value since its June highs, as a supply glut and a rising dollar have conspired to crush crude. The pain has hit other commodities, as well. Gold, copper and even wheat has lost a respective 13, 13 and 15 percent from their recent highs.
According to Schiff, the brutal price action across the commodity complex is simply the result of the Fed pulling back from its massive stimulus programs. By Schiff's thinking, other assets are soon to follow if the fed continues its course.
"All these bubbles are going to burst because of the same pin, which is the Fed withdrawing stimulus."
As the year comes to a close and investors square up their portfolios, many may look to sell out of losing positions for tax purposes.
That could mean further weakness for beaten-down assets in the short-term, but may also present attractive opportunities for those looking to snatch up underperforming assets at a discount.
Buying assets that others have sold for tax purposes "most certainly is something that can be very useful at this time of year," said John Stoltzfus, chief market strategist at Oppenheimer. "I think it's a very good opportunity if you have a picture of where you think we're going" in the year ahead.
The idea behind tax-related selling is that individuals who have experienced capital gains in a calendar year can offset the taxes paid on those gains by showing losses on other investments. For that reason, in a year where many thing have performed well, badly performing assets can add to selling pressure.
Tax selling was certainly blamed for gold's plunge at the end of last year.The S&P 500 was up 27 percent in the year to December, while gold was down 25 percent during that time. Those who wanted to offset taxes on sales of winning stocks were assumed to sell gold for a loss—which would explain why gold continued to drop in December, and hit the dead lows of the year on Dec. 31st.
This time around, the obvious candidate for tax selling is crude oil, which has fallen almost 50 percent from its highs on the year.
Just as gold simply kept dropping at the end of 2013, "I would expect that you would see the same thing for the crude oil market. There [are] a lot of traders, a lot of positions, that are long right now, and they're going to want to liquidate before the end of the year," said NYMEX energy trader Anthony Grisanti of GRZ Energy.
Of course, it hasn't been a great year for many commodities. Gold, too, is off of its highs, which makes Bill Baruch of iiTrader think it could succumb to tax-related selling in the sessions ahead. Still, Baruch says the better trade isn't going short for the short-term, but looking for the buying opportunities that tax-pressured selling could create.
"What you want to take away from this is not only a bearish bias in underperforming commodities towards the end of the year, but also the late holiday gift it leaves," he told CNBC via email.
Investors can easily snap up battered commodities at the start of 2015, Baruch said. Additionally, "those commodities can also see a further boost as fund managers look to reallocate into underperforming assets, creating what can potentially be a bullish bias to start the year."
The same thing that happened to the housing market in 2000 to 2006 has happened to the oil market from 2009 to 2014, contends well-known trader Rob Raymond of RCH Energy. And he believes that just as we witnessed the popping of the housing bubble, we are in the midst of the popping of the energy bubble.
"It's the outcome of a zero interest rate policy from the Federal Reserve. What's happened from 2009 to 2014 is, the energy industry has outspent its cash flow by $350 billion to go drill all these wells, and create this supply 'miracle,' if you will, in the United States," Raymond said Thursday on CNBC's "Futures Now."
"The issue with this has become, what were houses in Florida and Arizona in 2000 to 2006 became oil wells in North Dakota and Texas in 2009 to 2014, and most of that was funded in the high-yield market and by private equity."
And now that a barrel of West Texas Intermediate crude oil has fallen from $100 to $60 in five months, those energy producers are in trouble.
The S&P 500 has fallen as much as 2 percent, from Friday's close to Tuesday morning's low. And while stocks bounced back later in the session, technician Louise Yamada believes that more selling is ahead.
"I think we're due for some kind of a pullback," Yamada, of Louise Yamada Technical Research Advisors, said Tuesday on CNBC's "Futures Now." "And the fact that the Dow is tickling 18,000 is always a hesitation, the S&P close to 2,100—you [would expect to] get some kind of a pullback."
Read MoreTough morning for global equities
Additionally, enthusiastic market sentiment could point to weakness as well, given that market sentiment is often viewed as a contrary indicator.
"The sentiment has been quite bullish, and would suggest a pullback the way we had in January, and the way we had in August, and the way we had in October."
Oil prices fell to a five-year low on Monday, after Morgan Stanley cut its 2015 forecast for Brent crude, citing oversupply.
The bank said Brent crude prices could average as little as $53 per barrel in 2015, although its base case scenario was for $70. This was down from an earlier estimate of $98.
"Without OPEC intervention, markets risk becoming unbalanced, with peak oversupply likely in the second quarter of 2015. Prices are set up to fall in the first half of 2015," said analysts Adam Longson and Elizabeth Volynsky in a report out late on Friday.
The price of oil has declined by around 40 percent since June, with Brent futures falling bellow $67 on Monday—their lowest level since October 2009.
The biggest trend of 2014 has been the incredible outperformance of the American economy when compared to the rest of the world. That divergence has reduced bond yields, sent the dollar surging, crushed commodities, and been a big tailwind for equities.
However, as stock prices have continued to surge, valuations have become more stretched and appear to have outpaced economic growth. That has left investors who watch traditional metrics unsure of how to invest in the year ahead.
"You can see the glass as half full or half empty," said Curtis Holden, senior investment officer with Houston-based Tanglewood Wealth Management. "It's half full because the U.S. right now looks pretty good as a place for investing verses the rest of the world. But it's half empty because this is a below-average recovery by our standards."
The latest piece of good news for America came on Friday, when the Bureau of Labor Statistics reported that 321,000 jobs were created in November, in a rock-solid report that also showed mild gains in income.
This is in line with a string of relatively strong U.S. numbers, in comparison to a global situation that remains rocky at best.
Japan and Europe are both battling off deflation and recession. Separately, oil-producing nations like Russia have been hammered by the plunge in oil price—which is itself partially due to slowing global growth and surging U.S. energy production.
These trends have strengthened the U.S. dollar, bettered the position of the U.S. consumer, and caused bond yields to drop dramatically around the world and in America. This all conspires to make U.S. stocks more attractive, both in relative economic terms, and because they seem poised to provide greater long-term returns than bonds.
However, rising valuations have caused pause for some value-obsessed investors. While off recent highs due to a strengthening earnings outlook, the S&P 500's price-to-earnings ratio has risen dramatically over the past few years.
Noting the current elevated level of valuations on CNBC's "Futures Now," Marc Chandler of Brown Brothers Harriman gave a succinct piece of advice for those buying stock now: "Pray."
"That's the problem with being a value investor—sometimes the market does not provide value investments," he continued.
"The discipline means you wait until you find value, and that's what the great investors of our generation do," Chandler said. "They say 'There's no opportunity now, so I'm going to have to stay in cash.'"
Of course, not everyone is able to do that do that. Convergex chief market strategist Nicholas Colas says that U.S. outperformance has laid bare a stark difference between two different sorts of investors.
"The way the average investor is different from institutional investors is that average investors have a choice — 'Do I want to be in the market a lot, a little, or not at all?'
Institutional investors won't sit out the market, "and thus have to shift assets based on where the best opportunities are. And the clear winner is the U.S.," he said. "But for a lot of people, there's a big disconnect, because there's not a lot of wage growth, there's not a lot of good news," Colas said.
Colas reports that one of the common questions he hears is "'Nick, things aren't good, so why is the market doing well?'"
"If you don't want to play, I totally understand," he said. "But at the end of the day, if you're saving over the medium to long term, you won't get much return in bonds. You can hold cash, but to do that you have to save money. So if you want to maintain your standard of living, then you're left with stocks."
The "Minsky moment" is back.
Six years ago, the theories of economist Hyman Minsky were used to make sense of the collapse in housing prices, and its attendant effects on the economy. Today, Marc Chandler says the energy sector has just suffered its own Minsky moment. And while he doesn't expect it to take down the stock market, the slide in oil could have a serious impact on the high-yield bond market.
Minsky moment is a term coined by Pimco economist Paul McCulley in 1998, and it refers to a point when a period of rapid growth and risk-taking leads to a sudden turn lower and a crisis. Chandler, global head of markets strategy at Brown Brothers Harriman, says that is precisely what is happening in crude oil.
"Many people a couple years ago, a year ago, were saying that oil prices could only go up—'we're in peak oil'—meaning that we're running out of the stuff. So a lot of things were leveraged based on oil prices that can only go up. Sort of like house prices—'they can only go up.' So what happened is, because people held this as a deep conviction, they leveraged up," Chandler said Thursday on CNBC's "Futures Now."
In fact, the energy sector has borrowed $90 billion in the high-yield market since 2008, Chandler said, making energy producers "a large component of the high-yield market itself."
The problem is that "a lot of the loans, like loans on houses, were made not so much on a person's ability to repay the loan as on the value of the house. Similarly, the banks and investors bought high-yield bonds or leveraged loans on the energy sector not on the basis of their ability to repay it, but on the value of the oil in the ground."
Even after plunging almost 40 percent in five months, WTI crude oil prices will continue to fall in coming weeks, according to Oppenheimer senior energy analyst Fadel Gheit.
"Most likely this is not a bottom. Most likely we'll see oil prices going lower," Gheit said Tuesday on CNBC's "Futures Now." "The same traders and speculators that took oil prices from $95 to $70 will also be able to take oil prices from $70 to $60, or even $55."
Gheit said it's difficult to put a number on the bottom, because "once you get to a certain level you are going to see a lot of speculation. Speculation usually overheats oil prices on the way up, and really brings them down hard on the way down."
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