Clif Droke | Dec 21, 2014 02:26AM ET
With 2014 winding down, now would be a convenient time to discuss the prospects for the financial market and economy in 2015.
Year 2014 was in some respects a tumultuous year; from the slowdown in Europe and China to the collapse in oil and ag commodity prices, the deflationary undercurrents of the 60-year cycle was apparent this year. The long-awaited bottom of the 120-year cycle of deflation was finally made in October, and aside from some residual weakness still evident, the cycle bottom was a successful one.
With the lifting of the deflationary cycle, year 2015 promises to be a much stronger one than last year. The birth of a new long-term cycle will mean slow, steady re-introduction of inflation into the economy. More to the point, the next few years should witness gradual re-inflation. The runaway inflation that some analysts are wary of is still many years away. By the same token, the recent fears of many economists of a deflationary collapse are misguided. Deflation will gradually cease to be a persistent problem in 2015 and beyond as commodity prices should stabilize next year and consumer finances should continue to see improvement.
Year 2015 is also of course a “Five Year” which is the most reliably bullish year of any given decade. Going back to the previous 120-year cycle bottom of 1894, there has never been a bear market in the Five Year. One reason for this is because the 10-year cycle – a component of the 120-year long-term cycle – always bottoms at the end of the Four Year. The 10-year cycle is the primary long-term directional cycle within any given decade. Thus with a fresh new 10-year cycle underway in 2015 the odds favor a good year ahead for equities.
Fortunately for stock investors, most major indices are in a good position heading into 2015. The major indices are above their key longer-term trend lines, namely the 30-week and 60-week moving averages. Stocks have built up a good head of steam and are therefore primed to enjoy an overall bullish year ahead thanks to the release of upward pressure from the newly formed long-term Kress cycles.
One of the factors which kept many retail traders from participating in the stock market in 2014 was the lack of a clear directional bias in small cap stocks. The 1-year graph of the Russell 2000 Small Cap Index (RUT) below perfectly illustrates the frustration that small investors experienced this year.
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