Special Market Update: 2015 in Review

c9c19aed9865ffac78ce_image.jpeg
All index returns exclude reinvested dividends. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. All data as of 12/31/15. Credits: Yahoo Finance
c7f9c06feee5e55cc788_image.jpeg
All index returns exclude reinvested dividends. Past performance is no guarantee of future results. All data as of 12/31/15. Credits: Yahoo Finance
2ab918748c6edb89d2a9_image.jpeg
Credits: Yahoo Finance & Treasury.gov
c9c19aed9865ffac78ce_image.jpeg
"News is the first rough draft of history." 
 - Philip L. Graham

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%.[1]

Let's review some of the major events of last year: 
The Federal Reserve Raised Interest Rates 

After months of anticipation, the Fed finally pulled the trigger and raised interest rates in mid-December for the first time since 2006.[2] 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. 

How will the Fed's move affect bond yields? Short-term rates will likely start inching up, which we will hopefully see reflected in higher bond and CD rates, but long-term bonds are much harder to predict. Overall, bond yields should head higher if the Fed continues its stable, predictable process of raising rates.

 

Oil Plummeted to Historic Lows 

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.[3] 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.

 

Global Jitters Contributed to Volatility & Pullbacks 

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.[4]
 

These global worries came to a head in August when the Chinese central bank shocked the world by devaluing the yuan.[5] 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.[6]

 
However, markets didn't stay there; investors quickly regained their optimism and bought the dip, sending the S&P 500 up nearly 9.5% by the end of the year.[7] The lesson? Corrections are normal, healthy parts of the market cycle. While the sky can seem like it's falling at times, taking a deep breath and looking at underlying fundamentals is key to avoiding emotional reactions. 
 
The U.S. Economy Continued to Improve 
 
Though the global economy struggled in 2015, the U.S. economy continued to do well, even after a rocky start to 2015. Though economic growth slowed, hampered by global headwinds, the economy turned out respectable second- and third-quarter growth. Though we don't have fourth-quarter data yet, economists project that the economy grew 2.2% in the final three months of the year.[8] 
 
The labor market also continued to make progress last year. Overall, the economy is projected to have gained 2.5 million new jobs in 2015 and trimmed the unemployment rate to 5.0%. After 2014's 3.1 million new jobs, we can say that 2015 ends the best two-year period for the labor market since the dot-com boom days of 1998-1999. Though wage growth still isn't spectacular, hourly earnings increased 2.3% over the year.[9] 
 
Comparing the jobs growth to the previous year's total might suggest that the labor market growth slowed down in 2015. However, the rate of voluntary "quits" increased in 2015, indicating that people feel comfortable enough in their prospects to leave their jobs for greener pastures.[10] All told, the labor market did a lot to boost the economy last year.
 
Headwinds and Tailwinds in 2016 
 
While we have been largely optimistic about markets in past years, we're shifting to a more guarded stance for 2016. Many of the headwinds that dragged on market performance last year are still with us; while the "plow horse" U.S. economy is projected to grow moderately this year, global challenges remain.[11]
 
Overall, Wall Street is also cautious about stocks in 2016. A poll of top Wall Street analysts forecasted an average S&P 500 gain of 6.28% growth in 2016.[12] As always, it's best to treat these predictions with caution as projections this early in the year are always nebulous. What we can do right now is take a look at fundamentals and think about how these factors might play out in market performance. 
 
In the coming weeks, investors will be looking hard at fourth-quarter numbers to see how U.S. companies performed in the final months of the year. In the week ahead we'll see the December jobs report and learn more about the Fed's decision-making process around rates. We'll also see whether higher interest rates affected demand for vehicle sales and other big-ticket items at the end of the year.[13]
 
As always, if you have any questions about markets or your personal situation, please give us a call. We are honored by the trust you place in us and look forward to serving you in 2016.
 
HEADLINES:

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.[14]

Jobless claims jump sharply. The number of Americans filing new claims for unemployment benefits jumped by 20,000, likely because of seasonal holiday factors.[15]

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.[16]

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.

About Wealth Financial Partners, LLC

Wealth Financial Partners is an independent retirement planning and wealth management firm based out of Basking Ridge, New Jersey with expertise in financial life planning including investments, long-term care insurance, life insurance, 401(k) rollovers, retirement planning, tax planning and wealth conservation. For more information about Wealth Financial Partners, LLC, (877) 714-2362

106 Allen Road, 1st Floor, Basking Ridge, NJ 07920  walter@walterpardo.com

Securities and advisory services are offered through Independent Financial Group, LLC (IFG), a registered broker-dealer and investment advisor. Member FINRA/SIPC. Wealth Financial Partners and IFG are unaffiliated entities. OSJ Branch: 12671 High Bluff Dr. Ste 200 San Diego, CA 92130 licensed in: CA, FL, GA, KS, MN, NY, NJ, IL, PA, OH, SC, CT. 

Information provided is from sources believed to be reliable however we cannot guarantee or represent that it is accurate or complete. Because situations vary, any information provided on this site is not intended to indicate suitability for any particular investor. Hyperlinks are provided as a courtesy. 

The opinions expressed herein are the writer's alone, and do not reflect the opinions of TAPinto.net or anyone who works for TAPinto.net. TAPinto.net is not responsible for the accuracy of any of the information supplied by the writer.

TAP Into Another Town's News:

You May Also Be Interested In

Sign Up for E-News

Basking Ridge

Youth Leadership Somerset Accepts Applications for 2018-19 Program

April 16, 2018

SOMERVILLE, NJ - Youth Leadership Somerset, a leadership development program for Somerset County youth entering grades 9-12, is accepting applications for the 2018-2019 program year, which runs September through May. Classes are held one Saturday per month for approximately four to six hours. The application deadline is Monday, May 16. 

“Somerset County is ...

Travels Spotlight - New Brunswick Ciclovia opens 2018 Season

April 18, 2018

NEW BRUNSWICK  – New Brunswick Ciclovia will open its 2018 season on Sunday, April 22 for another fun day of open streets and active living for all. 

Now in its fifth year, New Brunswick Ciclovia is a family-friendly event that emphasizes healthy living and community building by opening our streets and offering programming for all to enjoy. From 11 a.m. to 4 p.m., more ...

The Role of Meal Replacements in Weight Loss

April 6, 2018

Obesity is at epidemic proportions in the United States and in other developed and developing countries. The prevalence of obesity is increasing not only in adults, but also in children and adolescents. We all know that obesity is a significant risk factor for various chronic illnesses, most importantly heart disease and diabetes, but also cancer and osteoarthritis, liver and kidney disease, ...

Upcoming Events

Thu, April 19, 7:00 PM

Museum of Early Trades and Crafts, Madison

METC hosting Travelers and Taverns: An Evening ...

Arts & Entertainment Education Food & Drink

Sat, April 21, 10:00 AM

Somerset County 4-H, Bridgewater

4-H Spring Carnvail

Arts & Entertainment

Sun, April 22, 9:00 AM

White Oak Park, Branchburg

Raritan Valley Habitat Youth Rainbow Run

Giving Back

Fourth Season of Live Music at the Ross Farm Kicks Off Sunday, April 22

April 18, 2018

Indie rocker Mike Mains returns to Basking Ridge to kick off the 2018 Ross Farm Music Series on Sunday afternoon, April 22. The doors open at 2:30 p.m. for the 3 p.m. concert but guests are welcome to come early and stroll the grounds of the historic Ross Farm at 135 N. Maple Ave. in Basking Ridge.

Mains has set himself apart in the world of indie rock, often mixing catchy lyrics and melodies ...

AtlantiCast

AtlantiCast: Episode 14

On this week’s AtlantiCast, an internationally recognized orthopedic oncologist takes a leadership role at Atlantic Health System, see the newest weapon in the fight against HPV-related cancers, Atlantic Health System leads the Castle Connolly / Inside Jersey Rankings, and much more!