With a few business days left before the end of the year, we reflect on the year that was and the potential in 2015.
It's been a disappointing year for the stock market, with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) down more than 3% since January, after two bumper years in 2012 and 2013.
Falling resources stocks are responsible for much of the falls, with Fairfax reporting that the energy and materials indices have fallen by 22.8% and 18.7% respectively, year-to-date. That's on the back of falling commodity prices, with iron ore and oil falling heavily this year.
That has seen the Australian dollar fall 7.7% to current levels of around US 82.1 cents.
Further falls for commodities prices and the Australian dollar appear highly likely next year. Many analysts are predicting oil prices to slide even lower, and we could see oil priced in the US$40 to US$50 per barrel range. Large oil producers appear locked in a deadly game of cat and mouse, refusing to cut production, until the highest cost producers end up bust.
Iron ore is also on the slide, as supply continues to rise and demand weaken. Expectations that higher-cost producers would fall out of the market and provide a bottom for the iron ore price, haven't materialised.
That suggests resources and energy stocks, including two of the largest iron ore producers, BHP Billiton Limited (ASX: BHP) and Rio Tinto Limited (ASX: RIO), as well as our largest energy stocks, Woodside Petroleum Limited (ASX: WPL), Santos Ltd (ASX: STO), Origin Energy Limited (ASX: ORG) will see renewed pricing pressure in 2015.
All five stocks also happen to be in the ASX's Top 20 stocks, and among our largest, so will contribute heavily to where the market goes in 2015.
The other big factor that drives our market is the performance of the big four banks. Following the Financial System Inquiry, it appears that banks will be prompted by regulators to begin lifting their capital base to hold more capital and protect the financial system.
While they are likely to be given a number of years to comply, the stockmarket as a forward-looking market is likely to begin pricing bank shares accordingly.
Further pressure could come if the RBA cuts interest rates as economists are now expecting, with a falling Australian dollar likely to see international investors pull out of the market.
That suggests 2015 has built up a fair few headwinds.
But there is good news. Lower interest rates and a lower Australian dollar would be excellent news for our exporters and the economy, potentially offering our resources and energy stocks the chance of recovery.
As you can see, I'm having a bet each way. Forecasting is just too difficult – if the experts can't get it right, what chance do I have?
