My 2016 Market Outlook - Opportunities Will Abound

Summary

• A bear market decline of 20% or more will ensue from last year's peak for the S&P 500 in 2016.
• Deteriorating economic fundamentals combined with a corporate earnings recession substantiate lower stock prices, but it was a rise in short-term interest rates that instigated last week's decline.
• Our precarious market structure will hasten and exacerbate this decline during the first half of this year.
• Ultimately, long-term investment opportunities will abound as market prices realign with fundamentals in a market that once again serves as a discounting mechanism.

I see the potential for significant investment opportunities in the US stock market and abroad in 2016. While this may seem like a bullish departure from the downbeat articles I have written in the past, let me preface by saying that I expect these opportunities to emerge as a bear market decline of 20% or more in the S&P 500 index (NYSEARCA:SPY) ensues. There will certainly be opportunities along the way, as some market indices and sectors are nearing, or have already surpassed, a 20% decline. The Russell 2000 index (NYSEARCA:IWM) of small-cap stocks has fallen 19% from its high last June. The biotech sector (NASDAQ:IBB) has shed 25% of its value since peaking last July. The energy sector (NYSEARCA:XLE) has declined more than 40% from its high achieved in June 2014.

Whether it be in individual companies, sectors or broad market indices, I think many of these opportunities will present themselves during the first half of this year. Why so soon? The process of realigning market prices with fundamentals is well underway, and our extremely precarious market structure lends itself to periods of significant price movements over relatively short periods of time that typically overshoot. Keep your powder dry. Combine this factor with a monetary policy that is no longer fueling the demand for financial assets, but is instead instigating a deleveraging process that began in earnest on Monday, and things can happen very quickly.

It may appear to be opportunistic to introduce a bearish market outlook for 2016 after the worst start to a year for the US stock market on record, but my writings have been far from sanguine for a very long time. From what I have read, China is to blame for this horrific start to 2016, because its economy is sputtering, its currency is weakening, and its stock market is

Analyst’s Disclosure:I am/we are long AAPL. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.