Markets have endured a stormy beginning to the New Year after suffering hard times last month. The broadest measure of the markets, the S&P 500, has declined for the third consecutive week. Down 8% year to date, this is the poorest start to the year ever for the index.

All other benchmarks are also languishing in the red. Ahead of the Fed’s meeting next week, few market watchers expect another rate hike to be announced. In fact, the four rate hikes proposed for the year could be reduced.

But another startling opinion is that the central bank could change course and begin easing once again. If this is indeed the case, it would make sense to pick stocks with good metrics which will gain from such a scenario.  

Poor Start to 2016

A number of factors have contributed to the turmoil experienced by the markets this month. Even though stocks had ended last quarter on a positive note, all three benchmarks closed in the red in December. The continuous decline in oil prices had a negative impact on energy shares. Fears about China’s economy were a major contributor to these losses.

But what was particularly hurtful to investors was poor domestic economic performance. A wide range of economic indicators on manufacturing, services, industrial production, inflation and retail sales are telling us that the recovery is in peril.

Fed Chair Janet Yellen has emphasized time and time again that all central bank actions are “data dependent.” Rate hikes are merely a reflection of the strength of the economy and become unlikely in the light of such evidence.  

Is QE4 Likely?

Market watchers believe four rate hikes are unlikely this year. U.S. interest rate futures indicate that merely two rate hikes could happen. In fact, several experts and market watchers are saying that another month of poor data and familiar headwinds could force the Fed to reverse course.

This is not unprecedented as can be seen from the annals of other countries. In Sweden, Australia and the Eurozone, rates were hiked just after the crisis of 2008. Now all of them have descended to historically low levels. Some market watchers believe that the first rate hike was poorly timed. As evidence of this, they point toward the response of the markets.