Since other investment banks seem to want to get in on the act, there seems to be a race each year to get this out earlier and earlier — much in the way that Christmas sales were pushed into November, then to Black Friday and now all the way into Thanksgiving Day.
But the good news for investors is that this impatience to be first in your 2015 outlook means that you have ample time to prepare your portfolio for what Goldman views as the top 10 investment ideas for 2015.
Here they are:
1. Global Recovery Hopes: Goldman expects above-average growth in 2015, but in addition to the U.S. being the “strongest anchor of the global recovery,” it also sees strength in markets like Japan and Europe, as well as emerging markets. China still looks rough, but the rest of the world seems a great place to be according to Goldman. So if you’re looking for a trade, think international with investments like the Vanguard Total International Stock ETF (VXUS) that provides 100% weighting outside the U.S., but with a bias toward developed markets. If you’ve abandoned global stocks in the last few years, this is your way back in.
2. Developed Economies Diverge: That said, Goldman also predicts that there will be a bigger gap between the U.S. and its peers overseas. That’s in part because of central bank policies, where the U.S. is looking to raise rates even as the European Central Bank and the Bank of Japan “continue to head down a path of easing and balance sheet expansion.” So while there’s a need to get diversified overseas, it’s important to keep a good footprint at home and be prepared to act if things sour in one particular region. Active traders may want to consider individual-country ETFs such as the iShares MSCI Japan ETF (EWJ) as one tool if you want to stay flexible in this environment instead of investing globally in a broad-based fund like VXUS.
3. Emerging Markets Will Improve: In 2014, emerging markets were gutted as the end of QE sucked a lot of money out of the global economy and as Europe struggled and demand slackened. But according to Goldman, emerging markets look much better as we enter a new year — with its favorite markets including India, Thailand and Chile. Consider dedicated ETF plays on these regions if you want to be aggressive, including the Powershares India Portfolio ETF (PIN) or the iShares MSCI Thailand ETF (THD).
4. But China Still Stinks: Wherever you put your money globally, you should be avoiding China right now, says Goldman. Specifically, the bank predicts just 6% to 7% GDP growth — impressive when compared with the U.S. or Europe, but way behind what many investors have come to expect from China. Let’s not forget that because of China’s size and hopes for urbanization and a transition to a consumer and service economy, it needs 7.2% GDP growth annually just to create enough jobs for prospective workers. That’s not good … so insulate yourself from China exposure in 2015.
5. Oil Will Fall — Again: This is straightforward: According to Goldman, “material expansion in oil service capacity in recent years is likely to lead to 5%-15% cost deflation across oil developments.” So if you own oil majors such as Exxon Mobil Corporation (XOM), expect the pain to continue.
6. The Dollar Rules — Again: Goldman says the U.S. dollar will continue to dominate, with “a multi-year phase of USD recovery.” That will naturally keep down commodities like oil and gold — see how these ideas are related? — but also may provide an opportunity in currency investments like the PowerShares DB US Dollar Index Bullish (UUP) that allow for investors to profit as the dollar gains in strength.
7. Watch “Lowflation”: If oil isn’t going any higher and wages are stagnant in the U.S. and Europe is grappling with deflation fears, there’s a big risk that the downward pressure on inflation will continue. Goldman doesn’t see this as a death knell, but it does see that the response to “deflationary risks” will be a defining trend in the new year — so don’t expect investment like the SPDR Gold Trust (GLD) to be very popular as inflation remains low and policymakers are more concerned with keeping prices stable or moving higher than putting a cap on rising commodity prices.
8. No Fed Hike Until September: If you’ve been afraid the bottom will drop out of mREITs or that your bond funds will take a big principle hit, don’t worry. Goldman says the first rate hike from the Federal Reserve might not hit until September. The bank says it believes the tightening process will prove manageable … but will come later rather than sooner. So don’t fear a great rotation out of high-yield dividend stocks and into bonds just yet.
9. Stability, Not Volatility: After a big swing in October and a spike in the VIX, many investors were afraid volatility was returning. However, Goldman doesn’t think that’s the case. While it predicted modestly higher volatility compared with long-term averages, it won’t be material and certainly won’t be as bad as the market craziness we saw immediately after the financial crisis. So for those of you banking on a big jump in VIX-related instruments like the iPath S&P 500 VIX Short Term Futures ETN (VXX), don’t get in over your heads … because volatility might not return in 2015.
10. Bottom Line – Low Absolute Returns: While all of this is modestly encouraging, it’s important to acknowledge that while there are no big risks and there are signs for optimism, there’s really no catalyst for impressive growth — and after another double-digit run in 2014, a lot of the gains are priced in. Goldman predicts a market that is “quite benign” on the whole, without a lot of fireworks. Depending on your perspective … that’s either very good or very disappointing.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at [email protected] or follow him on Twitter via @JeffReevesIP.