With the arrival of the new year, expectations are renewed for a more fruitful year in terms of your savings' performance. You'll surely want to improve on previous years' returns, perhaps even generating additional income through the stock market to supplement your earnings. This will be a more difficult task, as equity markets are showing signs of stagnation, a trend many financial analysts have pointed out. Last year, the Ibex 35 already disappointed many savers by failing to surpass the 10.000-point mark , registering a slight decline during this period.
The prospects for achieving your goals in the equity markets necessarily depend on a reasonably satisfactory performance of the main indices. In this regard, expert forecasts predict an average appreciation of around 5% to 10% for European stock markets . However, you shouldn't place too much emphasis on these predictions, as they almost never reflect reality, which is dictated by the markets themselves. That said, any setback could dash your hopes for this year.
However, one thing is clear if you want to optimize your savings for this new stock market year: if you want to achieve higher returns, you'll have to take more risks in your trades . And there's no alternative to fulfilling your desires other than investing in equities. Although it will likely require more effort than in previous years. And always with the recommendation to make purchases with sufficient protection mechanisms to mitigate the impact of undesirable situations in the financial markets.
You'll undoubtedly face the new year with renewed enthusiasm, but any unforeseen event could derail your expectations of increasing your wealth for another year . It's no coincidence that recent years have been highly positive for this type of investment, with significant appreciation in the prices of the main stocks traded on the stock exchanges. In most cases, these increases have been in the double digits, and have surpassed what fixed-income bank products offer, which rarely exceed 2%.
How will this year be for your investment?
Things might not unfold as you expected, and any unforeseen event could derail your plans. From the outbreak of a new (or latent) armed conflict to the possibility of the world's major economies entering another recession, economic events are very difficult to predict, and any change in them could throw you a curveball in 2016. It's wise to be prepared for these possibilities to avoid major disappointment.
To give you a clearer understanding of what could negatively impact your investments, there are several scenarios—not only economic, but also social and even political—that could harm you in the coming months. Many are highly unlikely to materialize, but others could appear at any moment, precisely when you least expect them . That's the nature of the stock market. And it's best to consider these factors when planning your investments for this period, before they actually occur. A significant amount of money is at stake.
First incidence: the Chinese crisis may take its toll
There was already a stark warning last summer that the slowdown in the Chinese economy could affect European countries, and also the United States. After all, their exports and imports depend on the performance of the Asian giant. And all the macroeconomic data that has emerged so far suggests that what is unfolding is not so much a soft landing, but a large-scale crisis , which will initially affect emerging markets.
If these expectations are confirmed, stock markets will most likely reflect this and experience sharp price declines . These declines could be substantial, depending on the results of key economic data regarding national accounts. This will be a very unfavorable scenario for your interests, which you should consider when planning your investments. It will almost certainly lead to losses in major financial centers worldwide over the coming months, perhaps with a severity not seen in recent years.
Second incidence: recovery of new world crises
If something can negatively influence the stock markets in the coming months, it cannot come from anything other than the economic downturn of the main engines of world growth. There are already symptoms that this scenario may appear again, and even some famous analysts predict that the latest cuts in stock markets is a consequence of this situation. Confirming that classic axiom that determines that markets anticipate economic scenarios.
Translating this hypothetical scenario to the stock market would mean that its most representative indices would correct their price levels , even reaching levels not seen in the last five years. This would abruptly halt the trend generated by the 2008 crisis. In such a case, investors would notice significant depreciation in their share prices, especially in sectors such as finance, construction, and commodities.
Third incident: problems with the euro
The European single currency will undoubtedly be closely monitored this year due to its strong links to unfolding events. In addition to potential financing problems in Greece, new issues will arise, such as the political instability of some EU member states , primarily Germany, France, Great Britain, and Spain.
In some cases, these fluctuations stem from the referendums taking place this year in many of these countries, whether for legislative elections (Spain and France) or for accession processes to the European Union (England). And of course, we mustn't forget the potential for instability in the German government, which could ultimately affect the markets, and very negatively.
Fourth incident: business results below expectations
Many leading experts are warning that corporate results for this new fiscal year will fall short of expectations, and adjustments may be necessary due to a slowdown in business activity. This could even result in figures below those forecast by major financial intermediaries. Such an outcome would be the definitive signal that stock markets will not follow the same trajectory as in previous years.
Despite everything, now is the time to invest in those stocks that meet your growth expectations . These stocks can guide small and medium-sized investors in selecting their investment portfolios. Indeed, this is key to optimizing future transactions during this period of great uncertainty.
Fifth incident: possible rise in the price of crude oil
While the price of oil experienced a significant drop in the past year, falling from $80 to $35 per barrel, this trend is not guaranteed to continue in the coming months. In fact, prices could rebound due to ongoing conflicts among major producers , potentially pushing them back to at least $60 or $70.
In any case, falling crude oil prices are not currently well received by the markets . This is especially true because they fear it could lead to a dangerously inflationary scenario for many of the world's major economies, particularly those in Europe. And in any event, there is a risk that stock market indices will reflect this scenario, which is so detrimental to the economy as a whole.
Sixth incidence: incidence of the rate hike in the United States
Although minor, this is a problem that could worsen the stock market trend if the US Federal Reserve adopts a more aggressive approach to raising interest rates, which it began at the end of 2015 with a quarter-point increase. This comes after many years of very low interest rates, practically at historic lows.
Any deviation from established estimates could significantly impact equity markets for a considerable period . Given this current context, financial intermediaries' investments for this year are focused on European stock exchanges, which they believe have greater potential for appreciation than markets across the Atlantic.
Seventh incidence: pay attention to the specific case of Spain
Finally, we should not forget what this community country is going through in its convoluted process to form a government, as a result of the last legislative elections that were held last December. What happens to form a government will depend - to a large extent - on the evolution of the equity markets. In this case referred to the national benchmark.
Even with the possibility of a repeat election this year, which wouldn't have a very positive effect on investors, you have the alternative of turning to other, less volatile stock markets until this complex political situation becomes clearer , at least during the first few months of this year. This will likely continue until a definitive solution is found regarding who will govern Spain for the next four years. Or perhaps even less, if there are early general elections, possibly within the next few months.