What Happened Last Year?
Last year was another good year for some domestic stocks. The S&P 500 reported a gain of over 13%, which sounds great on the surface. However these gains were mostly driven by a narrow cross section of the market – basically just the largest companies. This left most professional fund managers underperforming due to their more diversified allocations.
More jobs were added last year than any year since 1999. Inflation was subdued at 1.2%. Earnings are still strong for domestic companies, but expected to slow down this year. Valuations of stocks are now generally higher than average, which could also slow down the stock performance.
Overseas stock prices did not do so well in 2014. Developed markets were down 5% and emerging markets down about 2%. The significant rise of the U.S. dollar has hampered overseas market performance as well as the earnings of multinational companies.
The Effect of Oil Prices
As we speak, crude oil prices are down to $46.60/barrel. The upside of these low prices is it gives the consumer a fatter wallet. This helps retail business as well as transportation and manufacturing industries. For these reasons we haven’t seen stocks affected too much by the drop in oil prices.
What Should We Expect For 2015?
Earnings, though slower, should still grow about 1.1% for this year. Solid GDP growth of about 3% is still expected for this year. Stock market gains are expected to be solid, but perhaps more modest.
Overseas stocks are currently undervalued. The ECB is expected to begin a quantitative easing exercise in an effort to protect their deflation concerns and get their economy moving in the right direction. This action could elevate the overseas stock market.
We expect investment-grade bonds to bring low returns this year, but good returns are expected from the absolute-return oriented funds. Alternative return strategies are also expected to deliver good returns, with much lower volatility than the rest of the market.
Should We Do Anything Different?
Since each of our clients are already in the best position for what is expected in the future, we see no changes being made for most of you.
As always, we very much appreciate the opportunity to work with you. Please do not hesitate to call with specific questions you may have. We look forward to seeing you soon.
Max W. Smith, CFP®, CIMA®
Kent G. Forsey, CFP®
12213 W Bell Road, Suite 209
Surprise, AZ 85378