The stock markets have ended the year 2015 where they began the year. There is, however, a silver lining in the flat line capital gains performance: a shift in the psychology of investors. This might be good news for 2016.
The first half of 2015 was calm. This is attributed to good fundamentals as well as complacency/optimism on the side of investors. As fundamental concerns continued to build up, the happy attitude turned into the August-October mini-crash. This turnabout reintroduced growth worries that led to investor skepticism and risk focus.
As it is with the stock market, the subsequent recovery from the mini-crash did not necessarily lead to investor confidence being rebuilt. Instead, the investors were left fretting about the uncertainties that had now been revealed.
After taking its turn on the stage as the indicator of fear, VIX dissipated both in amount and interest in the fourth quarter as the market reestablished itself. Instead of the attitudes of the investors improving, they shifted to the price of oil: the most common example of negativity and worry.
As oil prices were hitting new lows, there was a rise in the sense of uncertainty and risk. This has been aided by Goldman Sachs and other players who explain why the price of oil could see further decline.
With the current situation where there are plenty of uncertainties and the stock market appearing to be in a rut, investors have fears that the same may recur in the new year.
This brings us to the reason the new year could turn out to be prosperous. The stock market in currently in a position that can see it produce positive surprises in 2016. Put in other words, when the risk pendulum is swung by investors to the ‘worry’ side, there is a possibility that good gains will arise from a countermove swing.
James Dondero is the man in charge of running Highland Capital Management, a Dallas financial services firm. Jim has enjoyed a successful career that has seen him earn over three decades of experience in the credit and equity markets.
The original article by Forbes can be found here.