Investors are bracing themselves for a big month in December, as there are several important pending events and announcements that will likely set the overall tone for the economy and the financial markets to begin 2016. The Fed will make a decision on interest rates, tension among OPEC members will get confronted and the ECB will set the tone for the European markets.
Many investors are noticeably tense about what December will bring as 2015 has not exactly been a banner year for the markets so far. From 2012-2014, the S&P realized double-digit gains, but this year it has struggled to even retain a positive return and is currently in the low single digits. Globally, the markets have been very volatile for most of the year and economists as well as investors haven’t been able to get a good feel for which direction things are headed.
Recent events such as the Isis attacks in Paris, tension between Russia and Turkey and the undefined role of the U.S. in a solution so far has added to the confusion. This certainly is not helping to inject confidence into the markets especially with so many big decisions looming in the background.
On December 3rd, members of the European Central Bank will meet and make two very important decisions that will decide a large portion of the landscape for the European markets. They started a stimulus initiative earlier this year which involved purchasing approximately sixty billion euros of bonds each month and will decide to increase the amount, continue the program as-is or end the program. Nobody expects the ECB to end the program so it is largely a matter of the program staying in place in its current form or seeing an increase.
Additionally, they will decide if interest rates will be cut yet again. Rates are already basically at zero percent and based on some calculations even negative. So far the rate cuts have not produced the results the ECB had hoped for as the economic growth in the third quarter for the nineteen ECB nations collectively was just under 0.5%. However, investors eagerly await these decisions in order to gain a slight amount of certainty about what the economic picture will look like in Europe to begin 2016.
The Fed meets in mid-December and will decide if interest rates will be going up. Raising its key interest rate would be the first time they have done so in almost ten years. Everyone knows the rates will be headed upwards as they have been at zero for the last seven years. The questions are when and by how much. This will not only have a major impact on the U.S. markets but globally as well.
October brought some good news on the job front as the U.S. economy experienced significant job growth. Additionally, several reports in late October cited a move upwards in wages for workers for the first in a while. This is always a good sign for the economy and helps to boost investor confidence. However, this makes Friday’s pending report even more vital to investor confidence as a negative report could quickly squash any small amount of optimism in the market. The job market has been unpredictable at best for a very long time in the U.S. and seeing sustained improvement in both the number of jobs and wages could go a long way in moving the markets in a positive direction.
There has been growing tension among OPEC members who have been battling about which direction to take. Oil prices right now are almost half as much as they were just 12 months ago and some of the more influential OPEC members are in favor of keeping production at current levels. However, smaller nations are trying to bring pressure to cut production in order to boost oil prices. Oil prices always have a big impact on the direction of the economy as they affect pricing on a wide scale. Members of OPEC will meet in December and a final decision will be made about oil production rates at least for the short-term. This will no doubt have a significant meaning for the global economy with all countries affected in some way.
December looks to be a big month for investors and will most likely determine the short-term direction of the U.S. economy and many other nations around the world. However, most experts do not expect the relative volatility to completely disappear anytime soon.