Goldman Sachs analysts believe 2016 will have pretty much nothing to offer investors.
In fact, the firms' strategists forecast the year to end right about where it began, with the stuck at 2,100 amid a morass of higher interest rates, the end of margin expansion and a "bifurcated" market through which participants will have to tread carefully.
"We forecast the S&P 500 index will tread water for a second consecutive year in 2016," Goldman said in a report for clients this week. "In many ways our 2016 forecast is 'deja vu all over again.'"
The weak market will come amid little growth in fundamentals, with gross domestic product projected to increase just 2.2 percent in both 2016 and 2017 and a 10 percent rise in corporate profits but a plateau in margins at 9.1 percent. Goldman said the increase in profits will be "misleading" in part because of a reversal in this year's earnings story. Much easier comparables in energy, which is expected to decline 58 percent for the full year, will inflate the 2016 picture.
The year-end price target reflects a decline of the price-to-earnings multiple to 16.2.
Also at the core of Goldman's forecast is a belief that the Federal Reserve will begin raising rates in December "and continue steadily for several years."
"When investors realize tightening will be more sustained than most expect, the P/E multiple will contract and offset the positive impact of higher" earnings per share, the report said.
"In terms of risks, uncertainties include (1) interest rate path different from our baseline assumption of year-end 2016 fed funds at 1.4 percent and 10-year bond yields of 3.0 percent; (2) global economic growth below our 3.5 percent forecast; (3) U.S. presidential election; and (4) geopolitics," Goldman said.
Looking at what will keep the market afloat, the formula is likely to be the same: Companies will commit more money toward buying back their own shares, acting as a substitute for retail investors who remain shy about committing money to a volatile market.
Investors will need to pay particular attention to companies that will benefit in a low-growth environment that nonetheless will see the strengthen as the Fed's global counterparts loosen policy while the U.S. central bank tightens.
According to Goldman, main investing strategies will be: "(1) Strong balance sheet stocks will outperform in rising rate environment; (2) Among several thematic splits in the market, firms with high U.S. sales will outperform stocks with high foreign exposure; (3) Stocks able to boost margins will be rewarded as most firms have reached a margin plateau."
Goldman also favors growth over value, cyclicals over defensives and mega-cap to outpeform large- and small-cap stocks.
Among the stocks Goldman says meet two or more of its 2016 investment criteria: