BASKING RIDGE, NJ- Now that 2015 is in the rear-view mirror, let's take a look at some of the factors that influenced markets last year. Though markets closed essentially flat, it's important to realize what a small miracle that is, given the many challenges that markets faced in 2015. For the year, the S&P 500 lost 0.73%, the Dow lost 2.23%, and the NASDAQ gained 5.73%.
After months of anticipation, the Fed finally pulled the trigger and raised interest rates in mid-December for the first time since 2006. After years of near-zero rates to stimulate business spending and economic activity, the Fed is finally confident enough to raise rates to keep prices from rising too fast.
2015 was another volatile year for oil prices and continued weakness highlighted concerns about global growth. At the end of December, Brent Crude closed at $37.08, down nearly 70% from a high of $115.19 in mid-June 2014. Weak global demand and high supply volume battered oil prices, even as the total number of oil rigs fell.
Cheap oil is a mixed bag for the market. On the one hand, it's a win for consumers who benefit from low gasoline prices and cheaper goods; on the other hand, oil-producing countries, energy companies, and ancillary industries have been hard hit by prolonged lows in oil prices. Weak demand for oil is also seen as another sign of the global economic slowdown.
As the U.S. continued to improve economically in 2015, markets were dogged by the realization that much of the rest of the world isn't faring so well. It has become very clear that Europe, China, and many emerging markets are struggling with protracted economic weakness.
Emerging market economies like Brazil, Turkey, and South Africa benefited from years of low interest rates, during which investors flooded their markets looking for higher returns. Now that the easy money party is ending, these investors are pulling their money out. Emerging market countries are dealing with the one-two punch of higher interest rates (increasing their borrowing) and debts that are denominated in a strengthening dollar, making it harder to pay back existing loans.
These global worries came to a head in August when the Chinese central bank shocked the world by devaluing the yuan. By making the Chinese currency cheaper against other currencies, central bankers hope to boost demand for Chinese goods. The move was widely viewed as an admission that the world's second-largest economy is in trouble, and markets reacted by plummeting. Between August 10th and August 25th, the S&P 500 dropped over 11%, officially entering correction territory.
Consumer confidence rebounds in December. A measure of consumer optimism rose at the end of the year, indicating that the improving labor market is giving Americans more confidence in their prospects.
Jobless claims jump sharply. The number of Americans filing new claims for unemployment benefits jumped by 20,000, likely because of seasonal holiday factors.
Midwestern manufacturing slips. A measure of the manufacturing industry in the Midwest indicates that December activity fell to the lowest level since mid-2009. While seasonal factors could affect the data, it could indicate sustained weakness in the factory-heavy region.
Puerto Rico makes bond payments. The U.S. territory, which has been struggling to make debt payments, will make full bond payments on its General Obligation (GO) bonds in January.
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