Looking Back, Looking Forward
Happy New Year!
Now that 2015 has concluded, I wanted to share a few thoughts on the markets. In doing so, I am going to borrow data from a recent article by Liz Ann Sonders the Chief Investment Strategist at Schwab. If you are on Twitter you might consider following her; I do. (@LizAnnSonders)
In a nutshell, the large growth companies did well, while the smaller growth and value companies, along with emerging markets and commodities, did not do well. Within the S&P 500, energy stocks fared the worst, down 21.0% on the year. Abroad in many developed markets, results were mixed; currency hedged investments outperformed those in dollar denominated securities, all of which related to the dollar's strength throughout the year (foreign investment returns are diminished and potentially negative for an investment that must convert returns back into a rising dollar).
The 50 largest companies in the S&P 500 (as of the beginning of 2015) finished the year up 1.50% on average. That was the good news. The smallest 50 companies in the S&P 500 concluded the year down 11.9% on average… a very strange year. Likewise, the companies that started the year with the highest P/E ratios (the most expensive) finished flat to positive. The companies that started with the lowest P/E ratios (the cheapest) finished down 5.0% on average. Surprisingly perhaps, the high-dividend-paying stocks also “got taken out to the proverbial woodshed”, while conversely (or should we say, “perversely”?), those paying no dividends finished up nicely.
Facebook, Amazon, Netflix and Google heavily influenced the performance of the index. Without these stocks, (collectively known as FANG), the S&P 500 would have finished down 4.8%.
Looking to 2016, there are several bright spots. In the six times since the end of World War II that the market finished the year between -2% and +2%, the following years' returns were all positive (double digits). Additionally, the last year of a Presidential cycle is typically one with positive returns. As a word of caution, all of this data is gleaned from the uniquely different economic climates of the past; today we anticipate a rising interest-rate environment, coupled with tremendous global uncertainty, both economic and political. The earnings outlook for U.S. stocks is not robust, but the U.S. might rightly be considered “the safest port in the storm” of uncertainty.
Please rest assured that I will be watching all of these things closely, and deploying capital at times that I think offer opportunity. If events warrant a shift in asset-allocation, changes will be made. I have yet to witness or hear of any investment cycle that did not have its share of uncertainty. The markets are up more than three-fold from the 2009 lows, and the entire way up has been full of questions and unknowns; 2016 is unlikely to be different, and all of us here at Russell Capital will be vigilantly seeking opportunity. I hope you do not hesitate to reach out to me if you have any questions.