Merrill Lynch Has 6 Crucial Key Investment Themes for 2016


Needless to say, 2016 has already started off in record fashion, and not in a good way. The massive decline to start the year is the biggest one on record and has left investors very nervous, and with good reason. A cauldron of China imploding, oil collapsing, Middle East tension levels rising to new heights, and an overall malaise when it comes to stocks have produced a horrible first half of January.

Despite all the perceived negatives, which are amplified when the financial media drags out perpetually bearish commentators, the reality is that while things are tense, the investing world we know it doesn’t end tomorrow. Job growth is accelerating in the United States and low energy prices should help to fuel consumer spending, which is 70% of gross domestic product.

In a new research piece from Michael Hartnett, the outstanding chief investment strategist at Merrill Lynch, he outlines six top investment themes that he feels could be the trends to watch for 2016.

1. Bye-Bye QE:  The era of worldwide quantitative easing soon may be coming to an end. While it has been over in the United States for some time, it may start to wind down in Europe as well. Many strategists, Harnett included, seem to feel that the United States and the S&P 500 may be a better vehicle for growth investors this year.

2. Oil Age: Is this the end of the oil age? While oil, natural gas and gasoline will of course still be required around the globe, the question is will technology prevent meaningful recovery in the sector. The trades here for investors are what Merrill Lynch calls “best of breed” U.S. energy stocks. ConocoPhillips Inc. (NYSE: COP) and Exxon Mobil Corporation (NYSE: XOM) both fit that profile, and are both rated Buy at Merrill Lynch.

3. Black Dragon: With China de-pegging its currency from the U.S. dollar, we could be in for a new era of volatility across multiple asset classes. While some on Wall Street make the case that removing the peg is good, the ensuing volatility, at least on a short-term basis, can ratchet up. Hartnett refers to this scenario as the “Black Dragon.”

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