5 things to expect in 2016

New- year forecasts should generally be dismissed, largely because they are usually wrong. Forecasts tend to have a recency affect in that forecasters typically assume that what is occurring now is going to continue to occur. Of course, in the stock market, that is sometimes just about the worst assumption you can make.

But while specific forecasts may be useless, it’s still a good idea to try to figure out what to expect in the big picture. Here are five events that we are pretty confident investors will indeed experience over the next year, though we have no idea what the market reaction, if any, will be to them.

Higher interest rates

Last week’s U. S. Federal Reserve rate hike, after countless years of discussion on the issue, finally sets the stage for more rate hikes down the road. Guess what? The market and the world did not end when the Fed hiked on Dec. 16.

The Fed has now set up a series of more rate hikes into 2017 and it is almost assured that there will be more rate hikes in 2016. How many and by how much will really depend on the economy. Right now, there is plenty of strength.

Dividend s t ocks have been crushed this year, but maybe these stocks will have a chance to do better in 2016 now that there is some clarity on rates.

Corporate earnings or growth will decline

The stock market rally (at least in the U. S.) over the past few years has largely been driven by growth in corporate earnings. In 2016, however, many companies will not be able to cut costs as much as they have in the past, and many companies may start to experience an earnings growth slowdown.

Much is going to depend on wage pressure, and how tight the employment market gets in the U. S. Based on current market valuations, the market may already be anticipating lower earnings.

However, if growth slows down more than expected, we could see lower earnings and higher interest rates in 2016, which might not be great for the market.

Wage pressure will start to be felt

Higher wages are great news for job seekers, but, as mentioned above, it may not be so great for companies.

U. S. unemployment right now is at a seven- year low of five per cent. If companies need to hire, they will likely need to pay more, potentially impacting profit margins. A supply response in oil We know better than to try to predict the price of oil. However, with untold billions in capital spending being slashed in the industry, we are fairly confident that there will be a supply impact sometime in 2016, since spending reductions result in fewer wells drilled, less production and less overall supply.

The price of oil, of course, still has the other side of the equation — demand — to deal with, but we certainly don’t envision many companies in the sector will dramatically boost production in 2016. The result might be some stability — finally — in the price of oil.

Canada is on sale

Canada’s weak stock market — one of the worst in the industrialized world — and plunging dollar could create a giant fire sale for international companies seeking to take over Canadian companies.

Suppose an international company was looking to acquire a Canadian company a couple of years ago, but held off. Now, with the weak market and currency moves, that target company can likely be acquired for 40 per cent or so less than before. As a result, a booming market for international takeovers of Canadian companies could be in the offing next year.

This outcome is likely the one we are most comfortable with of the five presented above. Any company in any sector looks vulnerable, and the energy and metals sectors in particular have giant targets on their backs.

These events may happen in 2016, or may not. If we were to wish for anything in the upcoming year, though, we might wish for a boring stock market. After the craziness of 2015, we could do with a year where things just get back to “normal” for a period of time.