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Barclays predicts ’16 returns will be mediocre

A new year is almost here. And that means Wall Street firms and its top investment pros are providing market forecasts for the new year. Barclays is the latest investment firm to weigh in on what investors can expect in 2016. And while the U.K.-based firm is not predicting Armageddon, it by no means is calling for a year of big gains, either.AP FINANCIAL MARKETS WALL STREET F FILE USA NY

Barclays says investors should prepare for “mediocre” returns next year, citing “elevated valuations” as a challenge for the stock market in a year in which the Federal Reserve is expected to hike interest rates for the first time in nearly a decade. And the firm won’t rule out another downdraft similar to the summer swoon in 2015. The title of the financial firm’s piece — “Global Outlook: Curb your enthusiasm” — sums up its caution.

Says Ajay Rajadhyaksha, Barclays’ head of macro research: “We do not expect the early stages of the Fed hiking cycle to disrupt global interest rate or equity markets.” “However,” he adds, “financial markets are priced for a benign financial environment — steady growth, low inflation and loose monetary policy. This is unlikely to persist as 2016 progresses. We suggest that investors start the year neutral on risk assets but recommend keeping some powder dry to take advantage of possible risk-off episodes, such as the China-linked sell-off we saw in August.”

Next year’s outlook seems like a replay of 2015. Heading into today’s trading session the Standard & Poor’s 500 stock index was down 0.6% for the year, down sharply from the 11.4% gain last year and the 29.6% return in 2013.