WHAT TO WATCH AS WE ENTER 2016 / China’s Slowdown Comprising about *30% of the expected global GDP growth Stock Market Breadth (vs US at 22%) 2014 - 2016, Chinese economic prospects will be watched closely, especially to begin the year as early indictors show faster than expected slowing. We may expect to see the Chinese government continue their systematic devaluation of the Yuan which began last August as another means of propping up their largely (but decreasingly so) export-driven economy. So goes China, so goes the world? The U.S. Economy Our economy is still the largest in the world and, given the FED’s seeming confidence in it, we might expect to see a normalization of the stock market’s reaction to positive and negative news (strong data is interpreted as such).

Such a return to normal may indicate that investors are beginning to kick their unhealthy addiction to the ZIRP, taking future rate hikes in stride. The current expectation for GDP is 2.5% for As an extension to scarce earnings and revenue growth 2016 which matches the current estimate for 2015, would theme, equity market performance as a whole has been likely be welcomed by investors, more sure of the earnings driven by a narrower group companies (FANG, small cap growth re-acceleration expected by analysts. Probably more underperformance), potentially a sign of an unhealthy market than any point in the last several years, given the absence dynamic.

Should the economic picture brighten, we would of the FED’s creative assistance, the focus will be more on look to see if stock market upside participation improves and the economy and, by translation into earnings. Will resilient broadens as a result. economic growth in the US re-ignite earnings growth and justify multiple expansion? Final thoughts Will the seven year old bull market which has registered Earnings +200% returns from 2009 lows continue to grind higher, with Per this chart below, analysts widely expect that Q4 as soldiers (small caps) eventually following the generals (large/ reported in coming weeks will be the last of 3 quarters of mega caps)? And finally, if the market is still overpriced decelerating earnings for S&P 500 companies as the US dollar based on P/E’s, what is the downside support if the Fed stops strength moderates and Energy/ Basic Materials companies easing and global growth slows? begin to lap their year over year earnings declines. Note that the US dollar experienced a swift advance during Q4 in anticipation of the FED’s rate hike which is likely to impact For more equity market insights from the Nasdaq Market earnings results for multinationals.

Will earnings growth Intelligence Desk, visit BUSINESS.NASDAQ.COM/MID- resume growth as analysts expect, or will they disappoint, MARKET-UPDATE causing a re-valuation of stocks? MICHAEL SOKOLL / CFA • Senior Managing Director • Market Intelligence Desk VINCENT RANDAZZO / CMT • Managing Director • Market Intelligence Desk * Source: http://www.visualcapitalist.com/where-does-global-growth-come-from-chart/ The information contained herein is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular security or an overall investment strategy. All information contained herein is obtained by Nasdaq from sources believed by Nasdaq to be accurate and reliable. However, all information is provided “as is” without warranty of any kind. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED. ©  opyright 2016.

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