Fourth Quarter Market Review
Amidst continuing concerns of slowing economic growth in China, freefalling oil prices, a December Fed rate hike, a surprise cut in interest rates by the People’s Bank of China and further easing from the European Central Bank global equity markets propelled higher in the fourth quarter. Large company U.S. stocks increased 7%, small company U.S. stocks gained 3.6%, international developed market stocks were up 4.7%, and emerging markets stocks finished modestly higher up 0.7%. Despite these gains however most markets finished the year flat to negative. The S&P 500 was the best performer, registering a gain (including dividends) of 1.38%, while Commodities fared the worst finishing the year down 29.39%! The U.S. dollar continued to strengthen against several major currencies reducing the gains of international investments to U.S. investors by roughly 1.5%.
2015 will be remembered as a year in which more normal levels of volatility returned to US equity markets with very little market return to show for it. The S&P 500 intra year ranged from up 3.5% to down 8%. Flat markets are not common but they do happen. Over the past 40 years, the calendar year return of the S&P 500 has been within a 5% plus or minus range seven times.
Global bond market movements over the final quarter of 2015 broadly reflected the diverging policy trajectories of the world’s major central banks. Growing expectations of a rate rise from the US Fed were fulfilled in December with a 0.25% increase; the first in almost a decade. The 10-year Treasury rose from 2.04% to 2.27% over the final three months of the year. High Yield bonds were down 2% in the last three months (and more than 4% for the year) as concerns about the energy sector and liquidity put pressure on the category.
“A lot of people with high IQs are terrible investors because they’ve got terrible temperaments. You need to keep raw irrational emotion under control.”
– Charles Munger, Vice-Chairman, Berkshire Hathaway