Q4 2015 Market Commentary

January 9, 2016


In spite of predictions a year ago about healthy returns from years ending in the number 5 and third year of presidencies, 2015 turned out to be the most difficult year for finding investment returns since 1937.  The best performing asset classes-Large US Stocks, Real Estate and Intermediate Term Bonds could only muster returns of 2-3 percent. Small foreign stocks earned about 6 percent, but that asset class is not often thought of as a major class (we allocate about 10% of equities to them).


Returns in developed foreign nations were fairly good in their currencies, but when converted to US dollars turned out to be flat or down for the year.  This is a result of the nearly 25 percent increase in the value of the US dollar versus foreign currencies in the last 18 months. Emerging markets stocks were up about 10 percent through April, but ended down significantly.  They suffered from currency effects more than developed markets.


The Federal Reserve finally raised short-term interest rates in December. After 7 years at zero interest rates, an increase of one quarter percent seems like a lot, but is mostly ceremonial.  Reaction to this long-awaited event was fairly muted.  Expectations are for some more raises, although most think they will not be rapid or often.  Market forces determine longer term rates and those have mostly been flat for some time now.


Real estate prices may have plateaued and if interest rates rise, could feel some downward pressure from income-oriented investors.  Commodity prices are again under severe pressure from slower worldwide economic growth and the strong dollar (commodities are traded in US dollars so a stronger dollar leads to lower commodity prices).


It is now almost 7 years since the beginning of the current bull market. It is not unusual to see some flattened returns after such a long robust period of increasing prices.  Most would see that as healthy for long-term returns from equity markets.




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