January marks a new year and a new beginning. While many of us were celebrating and having fun, top economists from around the world kicked off the new year by convening for the American Economic Association’s annual conference this weekend. A key discussion was the state of the US economy and its prospects for 2016. After years of wishing for it to be so, the US economy is now in good health and we have reached full employment. This is happy news for anyone who was still supporting their college graduate children after the Great Recession. Looking forward, growth may be limited in 2016 but should continue at a measured pace. As a result, one can expect more Fed rate hikes this year but perhaps only a couple since Fed actions prove it often errs on the side of caution. This year is also an election year and candidates are putting the economy at the center of their campaigns.
Volatility, like that unwelcome house guest around the holidays that just won’t leave, will continue to linger this year. There are a number of reasons for this, including increased tensions in the Middle East, possible terrorism and renewed concerns of a global slowdown.
Major market themes resulted in a strange, lackluster year where stocks traded close to their all-time highs, credit remained under significant pressure and after all of the volatility, the S&P 500 lost .73% , closing out the year close to where it began. The continuing rise of the US dollar had a negative impact on the energy market and commodities, especially oil stocks. The dollar’s strength and the collapse in oil prices led to a shortfall in corporate earnings relative to estimates. However, if you exclude the energy sector, there was modest earnings growth. China’s devaluation of their currency and a slowing economy led to turmoil in Chinese markets that extended to global markets. After unceasing speculation for most of 2015, the Fed finally raised interest rates in December for the first time in 9 years. Finally, the markets were further spooked by terrorist attacks at home and abroad. In light of such a difficult year, one might say that the market returns were good as it could have been much worse.
Performance was driven by uncertainty in 2015. Diversification paid off in this market environment and should continue to do so in the volatile market environment ahead. I wish you and yours a happy New Year and hope that you have many blessings in the year to come. As always, if you have any questions or wish to discuss your portfolio, please contact our office.
Olivia A. Mussett, CFP®