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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 - Commission Recapture - Investment Guidelines - Manager Searches - Custodial Searches - Asset Allocation - Execution Analysis - 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!