Market Digest – Week Ending 12/31
It was a disappointing final week to a lackluster year in capital markets. The S&P 500 index finished below its starting value, but dividend income left it with a roughly 1% gain, good enough for a seventh consecutive positive year on a total return basis. The US Aggregate Bond market also finished the year just about where it started. International stocks and bonds were down, primarily due to currency translation. The Bloomberg commodity index lost 25% for the year, driven by a 30% decline in oil. Gold dropped 11%.
S&P 500: 2,044 (-0.8%)
FTSE All-World ex-US: (-1.3%)
US 10 Year Treasury Yield: 2.27% (+0.03%)
Gold: $1,061 (-1.4%)
USD/EUR: $1.087 (-0.7%)
• Monday – Intel completed its $17 billion purchase of Altera.
• Wednesday – Puerto Rico announced it would default on some of its bonds on January 1, but would make payments on most of them. Most Puerto Rican bonds traded higher.
• Wednesday – Uber competitor Sidecar announced it would be shutting down immediately.
• Thursday – Conoco Phillips and NuStar shipped the first freely traded US oil in 40 years.
• Thursday – China announced it has begun building a second aircraft carrier.
Most investors lost money in 2015. For US stocks, large cap growth was the only style-box with gains. The other eight were down, which means most active mutual funds once again probably lagged their benchmarks. Even Apple, seemingly everyone’s favorite stock, ended the year with a loss. International developed stocks were down about 4% and emerging markets stocks were down about 16%. US bonds were flat but most bonds outside of Treasuries were down.
Seven years into a bull market, any kind of loss can feel disappointing. But investing is about cumulative returns over time, not calendar years. More important, investing is determined by the magnitude of gains and losses, not the frequency. If you were down a few percent in 2015, you should feel just fine about it. Small losses in years like this are a necessary part of longer term success, assuming you remain globally diversified in a strategic manner. We believe international assets are poised to regain leadership at some point in the next couple of years and when they do it will provide a boost to global portfolios.
If you were down much more than 5% for the full year, now is the time to reflect and figure out why. And if you happened to be among the few who were up more than a few percent (meaning you probably had a big weight in Amazon or Netflix) it may be time to consider how much longer US large cap growth can lead. Valuation metrics suggest the run of both US over international and growth over value are stretched.
Happy New Year!