Stocks traded off the last week of December leaving the S&P 500 Index in slightly negative territory for the year. The Santa Claus Rally never materialized, delivering instead a disappointing flat lump of coal. The 2015 returns put an end to a string of three consecutive years of solid annual gains, with the S&P 500 and Dow posting their the worst year since 2008. In fact, except for the NASDAQ, all the major equity benchmarks ended 2015 with a loss. Bonds also ended up virtually flat for the year, with the yield of the benchmark 10-year Treasury note ending at 2.27%—not far from the 2.17% level where it started 2015.
|Index||% Change YTD|
|S&P MidCap 400||-3.35%|
Few gains but lots of volatility
Even though US equity returns ended up flat in 2015, that was not the case for market volatility. The markets had their share of ups and downs. Some of the biggest thematic market overhangs were as follows:
- Falling oil prices
- China’s economic slowdown
- The timing of the Fed interest rate hike
- The strong US dollar
International markets not a place to hide
Non-US markets had their share of ups and down this year as well. Europe started off the year with the Greek debt crisis. A European economic slowdown forced the EU to institute a stimulus plan. And fears of a broader economic slowdown in emerging markets, in particular China, hit those markets as well. One bright spot was Japan, who has been on the “Abenomic” stimulus ride for a while. Japan’s Nikkei 225 Index rallied this year as those initiatives gained traction, finishing up over 9%.
Best and worst sectors of 2015
Consumer discretionary was the best sector in 2015, helped by strong performance from companies like Starbucks (SBUX) and Home Depot (HD). Technology was another area of sector strength, helping propel the NASDAQ Composite to a positive gain of 5.7% for the year. The so-called FANG stocks (Facebook (FB), Amazon (AMZN), Netflix (NFLX), and Google (GOOGL) were among the best performers for the year.
The worst sector for the year was Energy, as oil prices continued to decline in 2015, hitting a 7-year low in December of below $35 a barrel due to global oversupply. Utilities and financials also ended the year down.
The Fed finally raised rates
Certainly one of the overhangs on the market in 2015 was the timing of the first interest rate hike in nearly a decade. Speculation built going into the June, September, and December meetings, with the Fed finally raising rates on December 16th, a quarter of a percent. One factor staving off Fed action was the economic slowdown in China and the ripple effect it has on the emerging markets and the global economy.
Should US economic data remain sufficiently positive, the Fed is expected to make as many as 3 to 5 more rate hikes this year.
Predictions for the coming year
So what does 2016 have in store for investors? Market pundits warn that the U.S. markets could be reasonably flat again in 2016. The good news is not a single Wall Street strategist is predicting a bear market this year (a decline of more than 20%). The 7-year bull market is aging, but not ready to retire yet. A poll of 17 Wall Street strategists has predictions ranging from a high of +15.5% (Cannacord Genuity) to a low of +2.7% (BMO Capital Markets).
|How Does This Bull Market Stack Up?|
|The current bull market has to last for nearly three more years to match the length of the great bull market of the 1990’s|
|Period||Length of Bull Market||Total Returnŧ|
|May 1970 – January 1973||2 Yrs. 8 Mos.||58%|
|October 1974 – November 1980||6 Yrs. 1 Mo.||198%|
|August 1982 – August 1987||5 years||266%|
|December 1987 – July 1990||9 Yrs. 5 Mos.||546%|
|October 2002 – October 2007||5 years||121%|
|March 2009 – Today *||6 Yrs. 8 Mos.||257%|
|* as of 11/6/2015|
|Source: S&P Dow Jones Indices, Kiplinger.com|
There will be pockets of opportunity from a stock selection standpoint and in specific sectors of the market. Given the muted returns here in the U.S., investors should also consider allocating more to select foreign markets. There are fears that China may have a hard economic landing, the jury is out whether Japan can successfully come out of its economic funk, but Europe is attracting its fair share of bullish interest thanks to Mario Draghi’s “do what it takes” commitment there.
Here’s to a happy and prosperous 2016!
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1 Source: Reuters, obtained through Yahoo! Finance close as of 4pm ET, as of 12/31/15