2015 Market Outlook: BofA Merrill Lynch Global Research Forecasts Bull Market Slows to a Jog in 2015
December 09 2014 - 11:30AM
Business Wire
Bullish on Stocks, Dollar, Volatility and Real
Estate Opportunities to Be Found in Commodities and Emerging
Markets
BofA Merrill Lynch Global Research today released its outlook
for the markets in 2015, forecasting that the bull market in global
equities will continue next year but returns will slow to
single-digit rates. Strong fundamentals and healthy growth in the
U.S. economy support a case for investor optimism and opportunism;
however, in the lower-return, higher-volatility environment
projected ahead, selective allocation and defensive portfolio moves
will be crucial for performance.
At the annual BofA Merrill Lynch Year Ahead Outlook news
conferences held today in New York and London, analysts from the
Institutional Investor magazine top-ranked global research firm
summarized their outlook for the U.S. and global economies as
cautiously optimistic.
“While our key measures suggest that the bull market in equities
can continue, the sentiment is far from euphoric,” said Candace
Browning, head of BofA Merrill Lynch Global Research. “The world
appears to be under-allocated to stocks, and we believe we are
still only a third of the way into the Great Rotation from bonds.
In the U.S., we are maintaining our long-term sector weightings
with no changes from 2014, as many of the macroeconomic
expectations last year have been delayed. In the current
environment, now is the time for investors to be highly selective
and make tactical moves to position portfolios for more thematic
investing in a transforming world.”
Robust U.S. economic growth continues to outpace the rest of the
world, boding well for U.S. employment, wages and housing in 2015.
Core inflation is expected to remain steady, and as the new year
begins, confidence is high, oil prices are low, the dollar is
strong and Washington is relatively calm. As stocks near fair
value, sentiment among the research team shifts from extremely
bullish to slightly bullish. In the second half of the year, the
U.S. Federal Reserve will begin slowly hiking interest rates and
investors can anticipate three key changes: lower liquidity, wider
credit spreads and higher volatility.
Against this backdrop is moderately accelerating global growth,
offset by the very real threat of deflation outside the U.S.,
particularly in Europe. The BofA Merrill Lynch Global Research team
made the following 10 macro calls for the year ahead.
- The Standard and Poor’s 500 Index
expected to rise to 2200. While we believe the era of excess
returns and excessively low volatility is in the past, the secular
bull market in stocks should continue. Expected gains in the year
ahead imply a price return of approximately 6 percent, in line with
an anticipated modest deceleration in earnings growth.
- U.S. and global economic growth
accelerating. The U.S. economy should continue to grow with
household and corporate balance sheets nearly fully recovered and
with more stable Federal and state and local fiscal policy In 2015,
U.S. GDP growth is projected at 3.3 percent, with global real GDP
growth of 3.7 percent (up from 3.2 percent in 2014) and Euro Area
GDP growth of 1.2 percent.
- Moderate emerging market acceleration.
Economic growth in emerging markets should reach 4.5 percent next
year, up slightly from a disappointing 4.2 percent in 2014 (but
below the consensus call of 4.8 percent). The improvement should be
driven by stronger U.S. growth, lower energy prices and cyclical
rebounds in a few large economies like Brazil and India.
- Inflation, disinflation and deflation.
Low inflation is driving policies in every country. Core inflation
in the U.S. is expected to remain steady at about 1.5 percent, well
below the Federal Reserve’s 2 percent target. Meanwhile, the global
backdrop is disinflationary. In 2015, we expect Japan to focus on
ending deflation, while Europe faces a major threat of outright
deflation, which if it occurs, could trigger another debt
crisis.
- Commodities face near-term headwinds.
Moving into 2015, we see downside risks to energy prices on the
back of OPEC’s decision to allow the market to “stabilize itself.”
This could result in lower oil prices but also higher price
volatility. Our Brent crude oil forecast is reduced for an average
of $77 per barrel, and our WTI forecast is reduced to $72 per
barrel in 2015. The combination of a strong U.S. dollar, higher
interest rates and relatively subdued growth should keep other
commodity prices in check in 2015. Even then, we expect base metals
to perform relatively well on falling inventories, particularly
aluminum and zinc, though copper is less certain. Lastly, gold
prices potentially could fall to $1,100 per ounce.
- Global rates and currencies: liquidity
transfusion. The U.S. dollar should remain strong in 2015 as the
U.S. economy outperforms and the Fed moves to the exit. Rates
outside the U.S. are expected to remain low, or even decline, with
the five-year German government bond yield potentially falling to
zero and the euro/U.S. dollar and U.S. dollar/yen reaching 1.20 and
1.23, respectively, by the end of 2015.
- Credit markets under pressure. We
expect next year to bring an end to an unprecedented five-year
reach for yield trade as investment grade credit spreads widen to
140 basis points with total returns close to zero. A paradigm shift
in U.S. high-yield outlook should occur in 2015 with returns in the
low single-digit range, as investors demand a higher premium for
liquidity. Defaults should rise moderately to about 2.0-2.5
percent. IG and HY Issuance is expected to decline by 10-15 percent
next year on less refinancing activity.
- Global fixed income: a call for
quality. The story of 2015 may be outflows for both retail and
institutional investors in the U.S. and wider investment-grade
spreads. U.S. investment-grade bonds could see a total return of
zero. Meanwhile, investment grade in emerging markets should return
2.4 percent; in Europe, 1.5 percent to 2 percent; and in Asia, 1.4
percent. Total returns for high yield could finish around 6 percent
in Asia and the emerging markets, around 5 percent in Europe and
2-3 percent in the U.S.
- Hope springs eternal for U.S. housing
market. New home sales are picking up to more normal levels, rising
18 percent in 2015 and 13 percent in 2016 from extreme lows.
Existing home sales should increase by a more moderate 5 percent in
2015 and 3.2 percent in 2016, while home price appreciation
continues to slow.
- U.S. energy boom set to slow. Total
U.S. energy production continues to be driven by substantial shale
production; however, most shale oil projects generate very little
free cash flow, which means that output is highly price-sensitive.
The steep price drop will impact operations of small, levered shale
producers. Thus we see U.S. shale oil output growth dropping down
to half of this year's levels. In 2015, we expect natural gas
prices to average $3.90 per million British thermal units, driven
by continued strong domestic production growth of 3.1 billion cubic
feet per day and a drop in weather-sensitive demand. Both the U.S.
natural gas and thermal coal markets are expected to remain weak
throughout 2015, in our view, and liquid natural gas should enter a
bear market.
Detailed highlights of BofA Merrill Lynch Global Research
reports can be found here.
BofA Merrill Lynch Global ResearchThe BofA Merrill Lynch Global
Research franchise covers nearly 3,400 stocks and 1,100 credits
globally and ranks in the top tier in many external surveys. Most
recently, the group was named Top Global Research Firm of 2013 by
Institutional Investor magazine; No. 1 in the 2014 Institutional
Investor All-Europe survey; No. 1 in the 2014 Institutional
Investor All-Asia survey for the fourth consecutive year; No. 1 in
the Institutional Investor 2014 Emerging EMEA Survey; No. 2 in the
2014 Institutional Investor All-America survey; and No. 2 in the
2013 All-China survey. The group was also named No. 2 in the 2014
Institutional Investor All-Europe Fixed Income Research survey; and
No. 2 in the 2014 All-America Fixed Income survey for the third
consecutive year.
Bank of AmericaBank of America is one of the world's largest
financial institutions, serving individual consumers, small
businesses, middle-market businesses and large corporations with a
full range of banking, investing, asset management and other
financial and risk management products and services. The company
provides unmatched convenience in the United States, serving
approximately 48 million consumer and small business relationships
with approximately 4,900 retail banking offices and approximately
15,700 ATMs and award-winning online banking with 31 million active
users and more than 16 million mobile users. Bank of America is
among the world's leading wealth management companies and is a
global leader in corporate and investment banking and trading
across a broad range of asset classes, serving corporations,
governments, institutions and individuals around the world. Bank of
America offers industry-leading support to approximately 3 million
small business owners through a suite of innovative, easy-to-use
online products and services. The company serves clients through
operations in more than 40 countries. Bank of America Corporation
stock (NYSE: BAC) is listed on the New York Stock Exchange.
Visit the Bank of America newsroom for more Bank of America
news.
www.bankofamerica.com
Reporters May Contact:Melissa Anchan, Bank of America,
1.646.855.3152melissa.anchan@bankofamerica.comTomos Rhys Edwards,
Bank of America, +44.20.7995.2763tomos.edwards@baml.com
Bank of America (NYSE:BAC)
Historical Stock Chart
From Aug 2024 to Sep 2024
Bank of America (NYSE:BAC)
Historical Stock Chart
From Sep 2023 to Sep 2024