Two Predictions for (the Rest of) 2015

By Markets Fool.com

Did you know that 2014 was the first year ever in which the S&P 500 did not have four consecutive down days? Yep, it was that good of a year for U.S. large caps. They were up almost 15% in aggregate and caused investors little to no anxiety along the way.

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Go back a little further, and the S&P 500 has roughly tripled from its 2009 low, bearing some similarity to the stock market's performance in the late 1950s and early 1960s, when large-cap U.S. stocks went on a rip-snorting run that saw them rise more than fivefold. Put it all together, and this seems like a pretty easy time to have been an investor.

What's interesting, however, is that unlike that streak of performance in the '50s and '60s, this current bull market lacks breadth. Smaller-capitalization U.S. companies significantly underperformed the S&P 500 in 2014, and many foreign markets -- particularly emerging ones -- have had a multiyear streak of miserable underperformance.

So will large-cap U.S. stocks pull the market higher again this year, or will small caps win the day? Or is this finally the year when emerging markets redeem themselves by reverting to the mean? Of course, I have no idea what will happen for the rest of this year, but it's fun to pretend. So as I heap on a few grains of salt, here are three things that could happen this year -- one of which I can sadly guarantee will come to pass.

Prediction No. 1: I think oil production will grow in 2015
Oil hovers around $50 per barrel -- a sharp decline from its previously heady $100-plus price that almost no one saw coming. Energy stocks across the board have been crushed as a result, with the market predicting that wells will shut down, service companies will cease servicing, and there will be widespread wildcatter bankruptcies. But I think energy producers across the board will keep right on producing and that -- returns be darned -- global oil production will be up in 2015.

That's due in part to Saudi Arabia, which has clearly stated that it will let prices go as low as necessary to drive out "bad behavior" in the industry. They don't really care who they get to shape up -- Russian oligarchs, deepwater drillers, the shale cowboys, whomever. Just be sure of one thing: It won't be OPEC so long as Saudi Arabia is captain of the ship.

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But it doesn't look like Russia, Venezuela, Libya, Iraq, or any number of other sovereigns will blink, either. The former two reportedly fear that they won't be able to get their antiquated equipment working again if they shut it down, while oil revenues are too important to Libya and Iraq's precarious finances.

As for the deepwater drillers, the fact is that deepwater oil is long-dated oil -- very long-dated. Consider as an example that E&P giant Chevron discovered Big Foot in the Gulf of Mexico nine years ago. The company spent three years drilling appraisal wells and such. It signed KBR to design the platform in late 2009 and committed to the project in 2010. It had the platform's hull built in Korea and towed to Texas in January 2013 for outfitting. Now, after a decade, Chevron is finally ready to start producing 75,000 barrels per day.

Given $100-plus oil prices, Big Foot would throw off $3 billion per year in revenue. At current prices, not so much. But that won't stop Chevron from producing. You think Chevron will let its $5 billion platform sit in the dock and write off the billions more it spent on drilling and infrastructure? This oil price decline smarts for Chevron, but half of a $3 billion pie is better than nothing. The same is true of any deepwater project due to come online in the next two to three years. You can't just stop these things halfway through. As a result, we probably shouldn't count on supply from this source coming off very soon, either.

And what about those aforementioned wildcatters? Well, many of them are highly levered and believe that oil prices won't stay down for long. This means they'll keep pumping in 2015,agnostic to profits, so they can meet their interest obligations and be online when oil prices inevitably recover. Of course, when that "inevitable" recovery will happen is anybody's guess, and their situation may end up getting worse before it gets better.

Prediction No. 2: I think the "iWatch" will flop
This one will garner some snickers, because Apple is admittedly the world's most beloved tech company, with legions of adoring fans. In China, in fact, it has the highest net promoter score of any company in the country by more than 20 points. And it's set to release its Watch into the world this year, with aspirations that it will become another blockbuster product along the lines of the iPod, iPad, and iPhone.

But it won't be that kind of blockbuster.

One critical difference between the Apple Watch and its i-brethren is that the iPod, iPad, and iPhone basically invented their categories. They were great products and new solutions -- and the iPhone benefited further from telecoms that were willing to subsidize its purchase price for consumers. Smart watches, however, are already here, and consumers have already demonstrated that they're not really interested in them -- or in talking to their wrists like Dick Tracy (which is almost as cool as wearing Google Glass), or in having some robot count their stops ad nauseam.

What's more, watch makers and watch retailers we've talked to are dismissing the Apple Watch as too large for the average woman's wrist (even the dainty 38 mm option) and the wrong style for the discerning man. And if you can't wear a smart watch all day every day and benefit from the technology, why wear it at all? Sure, these could be the doubts of an industry on the verge of disruption, but given that watches must score high in both fashion and function in order to be successful, the argument seems credible.

Does this mean you should run out and sell or short Apple stock? Probably not. Apple doesn't need another blockbuster to justify its present valuation. Heck, even if the Apple Watch approximates the iPad's success and sells 15 million first-year units, it would be worth approximately $5 billion of revenue to Apple -- or less than 3% growth on its current revenue run rate, which is pretty incredible to think about.

Prediction No. 3: Investors will be fearful when they should be greedy, and greedy when they should be fearful
Throughout my career, I've opened positions that had people understandably asking, "Are you mental?" And sometimes, there's not a really appropriate response, especially when those positions start out bumpy. But when you're investing, you have to accept that sometimes things will get worsebefore they get better. One key to successful long-term investing is standing by a well-considered long-term thesis even when the market tells you that you're an idiot. Over time, the market has tried to say that about investors in companies such as Under Armor, Chipotle, Baidu, Whole Foods, Anthem (formerly Wellpoint), and many more.

This is why, though market themes may change from year to year, your market approach shouldn't. Year in and year out, investors should be looking to buy great companies and hold them for a very long time, allowing that greatness to compound over time alongside the value of the company and its stock. Long periods of time inevitably come with rough patches, but truly great businesses ultimately prevail over their operating environments.

But be alert
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The article Two Predictions for (the Rest of) 2015 originally appeared on Fool.com.

John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors. Tim Hanson has no position in any stocks mentioned. Motley Fool Asset Management manages portfolios that own shares of Apple, Chipotle, Whole Foods, Baidu, and Anthem. The Motley Fool recommends Anthem, Apple, Baidu, Chevron, Chipotle Mexican Grill, Under Armour, and Whole Foods Market. The Motley Fool owns shares of Apple, Baidu, Chipotle Mexican Grill, Under Armour, and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.