Despite headwinds like a strong dollar and lack of inflation, U.S. earnings growth should turn positive in 2016 and this will lift stocks modestly, said Lori Heinel, chief portfolio strategist at State Street Global Advisors. ‘We see the U.S. economy improving by a little bit, perhaps in the range of 2.5% to 2.7% growth next year,’ said Heinel. ‘But we think stocks will continue to be challenged and we are looking for something in the order of mid-single digit returns.’ She added that volatility is expected to continue in the year ahead, but the right investment strategies can balance protection with performance. One of Heinel’s strategies would be to overweight European equities over U.S. stocks. In her view, the European economy is underpinned by several strong market conditions including low interest rates, a weaker euro, lower prices for raw materials, and low energy prices. ‘Our core forecast is for the ECB to remain quite accommodative, in fact we are likely to see Draghi enhance their quantitative easing program later this week and we think this will provide the backdrop for Europe to do better than the U.S.,’ said Heinel. ‘And for some investors who might be worried about the currency, we recommend they do that on a hedged basis.’
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