Investors spent most of 2015 worrying about when US interest rates would rise. Now they have, the key question has changed. What we need to know now is how quickly rates will normalise, the trajectory of lift-off and where they will ultimately end up.

The Federal Reserve and investment markets disagree on this, with investors taking a much more cautious view than the rate-setters. I think the markets will be proved right and Janet Yellen will take her time.

That will provide a support to equities, which remains my asset class of choice in the autumn of this seven-year-old bull market. Shares tend to do reasonably well in the early stages of an interest-rate-tightening cycle. It’s only later on when rates are rising to counter higher inflation that markets wobble.

As the European economy is probably in better shape than it looks, one of the big risks next year might be that monetary policy doesn’t diverge as much as expected. The conventional wisdom is that the US dollar will strengthen, putting further pressure on the euro, emerging markets and commodities. But that story may have run its course. A rising US dollar would anyway be self-regulating, squeezing US corporate profits and so taking the pressure off the Fed to raise rates any further.

Not that I am yet ready to take the contrarian plunge back into oil, metals and the developing markets that depend on them. The mismatch between supply and demand in the oil market in particular is only going to get worse in 2016, especially if the US restarts energy exports and sanctions are lifted on Iran. Metals prices won’t improve until the miners take meaningful capacity out of the market. That still looks some way off. Commodities and emerging markets will be the next big value opportunity for investors but it may not come in 2016.

Inflation will remain subdued

That means that inflation will remain subdued throughout the year. I say this with some trepidation because history is littered with occasions when inflation looked to be licked only to kick in again surprisingly quickly. But I just don’t see it happening in the absence of a rapid rebound in the oil price.

Low inflation and interest rates mean that the search for income will persist in 2016 which lays the groundwork for another good year for commercial property. Real estate looks cheap (outside the prime areas), yields on property are high and they are likely to rise further on the back of robust rental growth.

The major asset class I am most worried about is fixed income, and not because of rising interest rates, although these won’t help. The bigger concern is credit quality, as companies have geared up their balance sheets in an environment of super-cheap money, and poor liquidity in a bond market no longer well-served by the investment banks. If there is a move to the exits, investors could find them crowded. Hopefully, the yield cushion on high-yield and even investment-grade corporate bonds is comfortable enough to keep investors interested next year, but it’s my biggest concern.

I’m neutral on the world’s biggest equity market. The US can’t expect much of an upward re-rating from here and earnings will struggle to pick up the baton with margins at historically high levels already. But there are enough positives not to call time on Wall Street just yet. The US consumer has saved the benefit of cheap oil so far but could start spending again next year and the US remains a great hunting ground for the innovative, technology stocks that are forming the market’s increasingly narrow leadership.

Elsewhere, I expect Japan to have another good year. Despite its strong performance in 2015, the Tokyo market remains a discretionary asset class for many global investors. For the first time in a generation, Japan looks like it could be emerging from its deflationary slump, earnings are rising and valuations reasonable.

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