Market Commentary - Month of January 2015
“Always seek out the seed of triumph in every adversity.”
– Og Mandino
Own a business? The start of 2015 is the right time to schedule quarterly meetings with your CPA, so you can adjust (or establish) metrics and key performance indicators and review performance as 2015 progresses.
Isabella took her two children to a place where stealing was common and everyone wanted to run home. Where did the three of them spend an enjoyable afternoon?
Last month’s riddle:
Last month’s answer:
THE MONTH IN BRIEF
DOMESTIC ECONOMIC HEALTH
America’s two most-watched household sentiment gauges pushed higher in December. The Conference Board’s consumer confidence index rose 3.9 points on the month to 92.6, and the University of Michigan’s index gain 4.8 points off of its final November mark to reach 93.6.2,3
More good news came from the Labor Department: November had been an outstanding month for hiring. Sure, the jobless rate stayed at 5.8% (the U-6 rate encompassing unemployed and underemployed ticked down to 11.4%), but the economy added 321,000 new jobs, 86,000 of them in the professional and business sectors. Additionally, the Labor Department revised the employment gains of September and October upward – 44,000 more people found work across those two months than initially reported.4
The Institute for Supply Management announced a slight November downturn in its manufacturing PMI; the 0.3% retreat took it to 58.7, still indicating strong expansion for the sector. (Overall hard goods orders also retreated in November, down 0.7%; economists polled by MarketWatch projected a 3.3% gain.) ISM’s service sector PMI jumped 2.2 points north in November to 59.3.2,3
Inflation pressure? There wasn’t much. The headline Consumer Price Index and Producer Price Index both saw November declines – 0.3% for the CPI, 0.2% for the PPI. Year-over-year, the CPI had only advanced 1.3%, the PPI 1.4%. (The core CPI was up 1.7% yearly, the core PPI up 1.8% in 12 months.)2,3
In mid-December, Congress voted to retroactively reinstate more than 50 tax breaks that had expired at the end of 2013. The extenders (which included the tuition & fees deduction, the R&D credit, the state & local sales tax deduction and many others) were all set to sunset at the beginning of 2015 barring further legislative action.5
GLOBAL ECONOMIC HEALTH
As for the broad EU, its jobless rate stood at 10.0% as the year wrapped up (with unemployment in the 18-country euro area at 11.5%), and its annual inflation rate stood at just 0.3% in December. In the U.K., inflation touched a 12-year low last month.8,9
Important indicators on foreign factory output and GDP were mostly disappointing. As December ended, the latest HSBC/Markit manufacturing PMI for China came in at 49.5; readings below 50 signal sector contraction. China’s State Information Center put the country’s Q3 growth at 7.3% (down from 7.5% in Q2) while forecasting 7.0% GDP for 2015. The Markit Composite Flash PMI for the eurozone moved up to 51.7 in mid-December; just prior to that, it had been at 51.1, a 16-month low.9,10
The picture in the Asia Pacific region was somewhat better. The winner for the month and the year: the Shanghai Composite. It gained 20.57% in December and 52.87% for the year (its A Shares actually advanced 53.06%). The Sensex lost 4.16% in December, the KOSPI 3.29% and the Hang Seng 1.59%, yet the KSE 100 rose 2.99%, the Jakarta Composite 1.50% and the S&P/ASX 200 1.84%. Japan’s Nikkei 225 was virtually flat, losing 0.05%.11
Now to the Dow Jones and MSCI benchmarks. The Europe Dow dipped 5.30% in December, the Dow Jones Americas just 0.76%; the Asia Dow was off 2.67%, the Global Dow 2.71%. The twin MSCI indices staged December retreats – the MSCI World lost 1.71%, the MSCI Emerging Markets 4.82%.11,12
Call 2014 the year of the strong dollar and weak oil. The U.S. Dollar Index gained 2.18% more in December, moving up to 90.29 on New Year’s Eve. Oil’s catastrophic 2014 ended with an 18.25% December loss; WTI crude went -45.42% on the year with a barrel worth just $53.27 on the floor of the NYMEX as the final trading day of 2014 concluded. Other major energy futures racked up big monthly losses, too. Unleaded gasoline slid 22.17% to bring its 2014 retreat to 47.03%. Natural gas fell 28.65%, heating oil 16.02%. Crops had a mixed month: sugar lost 6.50% and coffee 9.90%, but soybeans rose 0.54%, corn 5.77%, wheat 1.86% and cotton 3.16%.13,14
Last month was actually decent for metals. Gold ended 2014 at $1,184.10 on the COMEX with futures advancing 1.44% in December. Still, it declined 1.23% for the year. Silver rose 1.43% in December, platinum 0.58%; copper futures lost 1.12%.14
Looking at the near future, NAR’s pending home sales gauge managed to rise 0.8% in November, which was its best performance in 14 months. Groundbreaking tailed off for the first time in three months in the eleventh month of the year: housing starts fell 1.6%, with the issuance of building permits down 5.2%.15,16
Freddie Mac’s last 2014 Primary Mortgage Market Survey (December 31) showed the average interest rate for the 30-year FRM at 3.87%, a tenth of a percent below where it was in the November 26 edition of the survey. Between those two dates, mean rates on 15-year FRMs declined from 3.17% to 3.15% and mean rates for 1-year ARMs declined from 2.44% to 2.40%. Average rates on 5/1-year ARMs were unchanged at 3.01%.17
LOOKING BACK…LOOKING FORWARD
Indices are unmanaged, do not incur fees or expenses, and cannot be invested into directly. These returns do not include dividends. 10-year TIPS real yield = projected return at maturity given expected inflation.
For the last couple of years, stocks have surpassed expectations. Will they do so this year? Will corporate earnings be strong enough to generate another double-digit advance for the S&P? If the Fed times its moves right, the bull market could hold up nicely. Oil and Russia present two wild cards for the coming quarters. What if the world’s need for oil has peaked, and demand is never as high as it once was? What if the plummeting ruble and the seeming freefall of oil futures send Russia (in the worst-case scenario) toward a debt default? Can U.S. equities adequately withstand such potential shocks? Major questions, but it is worth reflecting on the major economic and geopolitical question marks confronting stocks in the past few years – all of which the bulls eventually ran past. Perhaps 2015 will surprise the analysts once again.
UPCOMING ECONOMIC RELEASES: 2015 kicks off with the following slate of economic announcements and reports: the December ISM factory PMI (1/2), December’s ISM service sector PMI and November factory orders (1/6), ADP’s employment change report for December and the December 17 Federal Reserve policy meeting minutes (1/7), December’s Challenger job-cut report (1/8), the Labor Department’s December employment report and November wholesale inventories (1/9), a new Fed Beige Book, November business inventories and December retail sales (1/14), the December PPI (1/15), the initial January consumer sentiment index from the University of Michigan, December industrial output and the December CPI (1/16), December housing starts and building permits (1/21), the Conference Board’s December leading indicator index and December existing home sales (1/23), the November Case-Shiller home price index, December hard goods orders, the Conference Board January consumer confidence index and December new home sales (1/27), a Federal Reserve policy statement (1/28), December pending home sales (1/29), and lastly the University of Michigan’s final January consumer sentiment index and the federal government’s first estimate of Q4 GDP (1/31).
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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. MarketingPro, Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System. 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The Bovespa Index is a gross total return index weighted by traded volume & is comprised of the most liquid stocks traded on the Sao Paulo Stock Exchange. The IBC Index from the Caracas Stock Exchange (Venezuela), also known as the General Index, is a capitalization-weighted index of the 15 most liquid and highest capitalized stocks traded on the Caracas Stock Exchange (Bolsa de Valores de Caracas). The SSE Composite Index is an index of all stocks (A shares and B shares) that are traded at the Shanghai Stock Exchange. The BSE SENSEX (Bombay Stock Exchange Sensitive Index), also-called the BSE 30 (BOMBAY STOCK EXCHANGE) or simply the SENSEX, is a free-float market capitalization-weighted stock market index of 30 well-established and financially sound companies listed on the Bombay Stock Exchange (BSE). The Korea Composite Stock Price Index or KOSPI is the major stock market index of South Korea, representing all common stocks traded on the Korea Exchange. 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