Local investment advisers are expecting another good year for the stock market in 2015, and all you have to do is glance at a gas station to see a big reason why.
With oil prices plunging by 50 percent from their 2014 high to a level not seen since May 2009, consumers are finding a little more money in their pockets for discretionary purchases. And businesses are seeing their energy costs drop, which will be good for their profits.
Combine that with an economic backdrop that is pretty similar to what the country has experienced for the last few years – low inflation, low interest rates and modest economic growth – and a panel of local investment advisers are predicting a slightly better-than-average year for the stock market.
The local advisers, on the whole, are forecasting a 9.5 percent increase for the Dow Jones Industrial Average during 2015, with the Nasdaq Composite index expected to rise even faster, jumping by almost 12 percent.
Gerald T. Cole, the managing director of Arbor Capital Management in Amherst, thinks the plunge in oil prices will do great things for Wall Street.
With consumers having more money to spend because of lower gasoline prices and smaller heating bills, consumer spending should pick up.
“Lower gasoline and heating bills are like money in the bank for families,” said Cole, who is the most bullish of the local advisers, forecasting a 15 percent jump by the Dow and a 20 percent surge in the Nasdaq.
It also should be good for businesses, which will enjoy lower energy costs that will give a nice boost to their profits, Cole said.
“All this cheap energy is a huge tailwind for the United States,” said Tim Johnston, the managing partner at Sandhill Investment Management in Buffalo.
Behind the bullishness is the decision by OPEC in late November to keep producing oil at the same pace, even though prices were being driven down by new supplies of shale oil coming onto the market in the United States and elsewhere. With OPEC not trying to keep prices high by adjusting its production downward, the rising supplies of oil have caused crude oil prices to drop by about 25 percent in a little more than a month.
“OPEC is no longer the hidden hand restraining our economy,” said Jeremy Beck, the president of Anvil Investment Partners. “I can not overstate the significance of the fact that OPEC is no longer a price maker. It has been reduced, in literally the blink of an eye to a price taker – and a feeble one at that.”
And with gas prices dropping below $3 a gallon in the Buffalo Niagara region and approaching $2 a gallon in many U.S. markets, the economy is getting a boost from the energy savings that consumers and businesses are now starting to reap from lower energy prices, offset somewhat be the pain the lower prices are causing in the energy sector.
“In an era of prolonged wage stagnation and subtly increasing tax burdens, this is the first break we’ve gotten in recent memory,” said Beck, who joined Cole as the most bullish local advisers, predicting a 14 percent jump in the Dow and a 20 percent spike in the Nasdaq.
Bruce Kaz, the president of Courier Capital Corp., a Buffalo money management firm, thinks investors will be looking at almost ideal conditions for continued gains in the stock market.
“The ongoing combination of low interest rates, low inflation and fair valuations continue to be a near optimal environment for equity investors,” said Kaz, who expects the Dow to rise by 9 percent and the Nasdaq to jump by 11 percent.
The tumbling energy prices, combined with moderate economic growth that isn’t threatening to overheat the economy, should keep inflation in check next year, said James P. Julian, the executive vice president at Robshaw & Julian Associates in Amherst.
“We think the economy should continue to expand, but not at a break-neck pace,” said Julian, who expects the Dow and the Nasdaq to rise by 9 percent next year.
Further bolstering the U.S. market will be unrest and uncertainty in some overseas markets, from political and economic troubles in Russia to weak economies in parts of Europe, from Italy to Spain and Greece, said Kevin E. McKenna, the president of Main Line Capital Management in Buffalo.
That could help bring in money from foreign investors, said McKenna, who is forecasting an 8 percent rise in the Dow and a 12 percent gain by the Nasdaq.
“The U.S. economy and the U.S. equity markets will continue to be the best choice for global investment managers,” he said.
But the softness in some key overseas economies, such as China’s slowing growth rate, will keep a damper on the potential upside of the U.S. stock market next year, said David Hartzell, the president of Cornell Capital Management in Clarence. That makes Hartzell the least bullish of the investment advisers who participated in this year’s forecast, with a prediction that the Dow will rise by 4.5 percent and the Nasdaq will gain 8.35 percent.
“2015 will be a repeat of 2014, with the stock market providing good, but not spectacular returns,” he said.
While the declining U.S. unemployment rate, now at 5.8 percent is a bright spot, Hartzell said the market will be hampered by a slow rise in U.S. interest rates, along with China’s cooling economy and the potential for flare-ups in the always volatile Middle East.
“With nearly 40 percent of earnings in some of the larger companies tied to foreign markets, you have to wonder what levers they have left to pull in order to increase earnings in the future,” said Anthony J. Ogorek, the president of Ogorek Wealth Management in Amherst, who is predicting a 5 percent rise in the Dow and an 8 percent gain by the Nasdaq.
“I guess the issue is whether the rest of the world is going to drag the United States down, or are we going to carry the day?” Johnston said.
“I think we’re in the fifth or sixth inning of an expansion,” said Johnston, who expects both the Dow and Nasdaq to rise by 10 percent. “I think the U.S. will carry the day.”
Above all else, remember that no one really can predict what the stock market will do with any degree of certainty, said Thomas R. Emmerling, the managing partner at Dopkins Wealth Management in Amherst.
That’s why Emmerling advises investors to focus on what they can control, rather than worrying about what they can’t influence.
“You can’t control the snow, but you can buy the gas for your snow blower, food for the pantry and fill the hearth with firewood,” said Emmerling, who predicts a 6 percent gain by the Dow and a 7 percent advance by the Nasdaq.
“The same is true for the capital markets,” he said. “Forecasts will be filled with surprises, but you can control your portfolio’s diversification, risk and costs.”