Download 4Q 2014 Market Commentary

Q4
.
P1Dow closes up
1,019 points in 4Q
2014. S&P 500
closes up 113 points
in 4Q 2014
P2 Almost twothirds of the earths
surface is covered by
water. If the earth
were flat, water would
cover everything in a
layer two miles deep!
P3 The hottest
continent on earth is
Africa, where a
record high of 136.4
degrees F was once
recorded.
Antarctica is the
coldest continent on
earth, where a
temperature of 126.9
degrees F below
zero was once
Contents
P 4The fastest
bird is the peregrine
falcon. It can fly at a
speed of 168-217
miles per hour.
U.S. stocks finished strong in 2014,
with the S&P 500 hitting an all-time
high –one of 53 new highs hit during
the year – in the final week of
December on its way to an 11.4% price
gain for the year. The Dow Jones
Industrial average was also near a high
at year’s end, and the NASDAQ
Composite hit a 14 year high in
December, just 5% short of the
dot.com boom peak in March 2000.
Smaller stocks generally lagged the
big-cap market leaders, recording
single-digit returns and reversing their
relative positions from 2013, when the
two main small-cap market averages,
the S&P 600 SmallCaps and the
Russell 2000, had returns of close to
40%. Stock prices endured and
overcame at least four attempts at a
market correction during 2014, while
for a second straight year market
volatility was relatively quiescent, with
the VIX stock volatility measure at 14,
lowest since 2006 and roughly 10
points lower than in 2011.
decision not to defend higher prices – i.e.,
not to cut production from the 30 millionbarrel-a –day level it has maintained since
2011. In the past, when OPEC has
reduced production, it has been Saudi
Arabia that has typically absorbed most of
the cuts. That is to say, the Saudi’s were
one of the few producers not to cheat on
quotas. In 2014, the Saudi’s may have
been motivated by a desire to enforce
more discipline on the other 11 member of
OPEC or possibly to impose some pain on
enemies such as Iran and Russia. Then
there is also the possibility that, like other
cartels before them, OPEC has simply lost
control of the market as new production
ramps up in the United States and
elsewhere.
U.S. GDP growth, which was in the 4.5% 5% (annual rate) range during the middle
two quarters of 2014, will be hard pressed
to achieve anything approaching 4%
growth in 2015. Indeed, while there is an
outside chance for 3% growth, the impact
of falling oil prices on the oil patch – where
a fair chunk of recent growth has
originated – has made us ease back on
If there was one theme dominating the our economic growth and inflation
fourth quarter of 2014, it was oil prices projections for the coming year.
cascading lower. Crude oil futures
Compared with other developed
prices fell roughly 40% in the final three economies, the U.S. should be able to
months of 2014, more than 25%
continue its above-average showing.
coming after OPEC’s November 27
P 5 In 1999, the
U.S. government
paid the Zapruder
family $16 million
for the film of JFK's
assassination.
P 6 Oregon
The
world's smallest
park, totaling 452
inches, created in
Portland on St.
Patrick's Day for
leprechauns and
snail races
Consults to:
Pension
Annuity
Health
Money Purchase
Foundations
4QTR
YTD
Utilities
12.20%
24.30%
Materials
-2.30%
4.70%
Consumer Stap
7.40%
12.90%
Financial's
6.70%
13.10%
Consumer Discr
8.30%
8.00%
Stock prices in the U. S. are not
cheap, but neither is the S&P 500’s
17-18 price/earnings multiple on
trailing 12-month earnings excessive.
That represents a roughly 5% P/E
premium over the market’s average
P/E multiple since 1987. Investmentgrade fixed-income securities offer
little competition to stocks today- the
10 year Treasury note yield fell below
2% in early January and corporate
fundamentals are on the mend. One
should probably expect the S&P 500’s
three-year hiatus from an old-style
market correction of 10% or more to
end in 2015. Still, the U.S. stock
market appears to have far more
going for it than agents working
against it, which may extend the bull
market into a seventh “fat year” two
months from now.
At its last FOMC monetary policy
meeting of 2014, Federal Reserve
governors and bank presidents were
projecting 2015 GDP growth of 2.6% 3.0%. Falling energy prices, ongoing
weakness in overseas economies, and
the strong dollar make us somewhat
more conservative in our outlook for the
U.S. economy and corporate profits in
the year ahead. Inflation and interest
rates also stand to be lower than
previously thought. Barring severe
market weakness, we believe that the
Fed will raise interest rates sometime
this summer – if only to get a start on
what we believe will be a slow transition
to more normal interest rates. This
backdrop of moderate growth, low
inflation and modestly rising interest
rates should prove to be favorable for
stocks and not terribly unfavorable for
corporate bonds in 2015.
Endowments
401(k), 401a, 457
Performance
Measurement
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2450 Middle Country Rd
Centereach, NY 11720
Phone (631) 585-8282
Fax (631) 585-8343
E-mail
[email protected]
12/31/14
QTR
YTD
S&P 500
4.93%
13.69%
R 1000 G
4.78%
13.05%
R 1000 V
4.98%
13.45%
R Mid Cap
5.94%
13.22%
R 2000
9.73%
4.89%
MSCI EAFE
-3.57%
-4.90%
Key themes heading into 2015 are the
Fed and its plan for interest rates, the
length of the current bull market, the
late-cycle strength we have seen in the
economy, and oil's recent price
collapse. Any Geopolitical issues
always have to be a concern!