January 9, 2015
New Year Rings With (Cautious) Optimism
Investors who weathered the volatility of the domestic stock market in 2014 were rewarded come year-end. The Nasdaq and S&P 500 ended up more than 10% each, and the Dow Jones finished with a respectable 7.5% gain. The final three months were a boon, as well. The fourth quarter saw the Nasdaq leading with a 5.4% gain; the Dow gain 4.6%; and the S&P 500 climb 4.4%. These numbers indicate an economy steadily growing over the long term.
|12/31/14 Close||12/31/13 Close||Change||Gain/Loss|
Performance reflects price returns as of December 31, 2014.
December’s so-called Santa Rally was buoyed by economic data. For example, consumer sentiment hit a seven-year high; consumer spending was up on the back of unexpectedly lower oil prices; unemployment was down; and third-quarter real gross domestic product (GDP) wowed at 5%. Investors seemed to focus on this string of good news, and ignored the mediocre housing numbers and a disappointing durable goods report.
Chief Investment Strategist Jeffrey Saut cautions, though, that we’ve experienced 38 months of upside without a 10% correction (we’ve come close, but haven’t quite hit the mark); in a typical cycle, we’d see a pullback of that magnitude every 18 months or so. This particular rally is “long in the tooth” by his reckoning, but isn’t unprecedented. His outlook for 2015 suggests a difficult period in the first quarter, though in a longer-term bull market any pullback could provide an opportunity for rebalancing or starting new positions. So far, we’ve seen lower gas prices take a toll on energy names in the first few trading days of January, and that sector’s slump has broadened to other sectors. Taking the longer view, however, Saut believes this secular bull market still has years left to run.
Looking ahead, Chief Economist Scott Brown notes that the sharp drop in gasoline prices should provide strong support for consumer spending growth in the first half of 2015. Businesses, too, will benefit from lower transportation costs, which could get passed on to consumers and/or employees in terms of higher wages. Job growth was strong in 2014, and employment gains should remain brisk throughout the year. However, growth in average hourly earnings has been relatively lackluster. Wage growth should pick up as the job market tightens, and the Fed has indicated that it will be patient before deciding when to begin raising short-term interest rates. Policymakers also remain watchful of geopolitical risks and soft global economic growth; however, the fundamentals of the U.S. economy are in good shape.
I’ll continue to monitor developments from the Fed and the latest economic data, as well as any news from the domestic and emerging markets. And, I’ll be sure to share any trends that could affect your long-term financial plan.
Please note that our office will be closed January 19 in honor of Martin Luther King Jr. Day. We will reopen on Tuesday. Thank you!
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Investing involves risk, and investors may incur a profit or a loss. Past performance is not an indication of future results. Investors cannot invest directly in an index. The Dow Jones Industrial Average is an unmanaged index of 30 widely held stocks. The NASDAQ Composite Index is an unmanaged index of all common stocks listed on the NASDAQ National Stock Market. The S&P 500 is an unmanaged index of 500 widely held stocks. The performance noted does not include fees or charges, which would reduce an investor’s returns. There is no assurance the trends mentioned will continue. Market letter data and information is compiled from a variety of reputable resources, including Raymond James financial experts, such as Chief Economist Scott Brown and Chief Investment Strategist Jeff Saut. Our research also uses third-party sources, such as Federal Reserve publications, CNBC, CNNMoney, Bloomberg and Yahoo Finance. The information is then vetted through the relevant product areas, as well as compliance and editing before being distributed. The process of rebalancing may result in tax consequences.