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Monday, January 04, 2016

Financial Review

2015 Financial Review

DOW – 178 = 17,425
SPX – 19 = 2043
NAS – 58 = 5007
10 Y – .03 = 2.27%
OIL + .45 = 37.05
GOLD + .40 = 1060.20
SILV – .03 = 13.81

This is the final day of the year, and so it is appropriate to review where the markets stand; generally, it was ugly. We’ll take a look at stocks, bonds, the dollar and commodities. It was not an easy year for investors. Nearly 70% of investors lost money this year, according to Openfolio, an app that allows people to track their investment performance and compare their portfolio with other users.

Warren Buffett is seeing his worst year since 2008, with Berkshire Hathaway shares down more than 11% year to date. Bill Ackman of Pershing Square Capital sent a letter to investors in December that said 2015 may be the fund’s worst year since it was founded in 2004. 2008 was a terrible year in the stock market, but bonds were up 22%. But this year, not one major asset class had a good year.

If you went to sleep on December 31, 2014 and you just woke up today, you might think nothing happened in 2015. The S&P 500 index started the year at 2058, and closed at 2043, for a loss of 15 points or about 0.7%; with dividends reinvested the S&P 500 is up just about 2%. This follows three straight years of double digit gains for the S&P.

The best performing sector in the S&P was Consumer Discretionary with a gain of 9.5%. The worst performing S&P sector was Energy (no surprise there) down 23.8%, and materials down almost 10%. Netflix was the top performing stock in the S&P 500 with a gain of 139%; Amazon + 122%. Add in Google (now called Alphabet) + 49%, and Facebook + 36%. The big losers in the S&P were Chesapeake Energy, CONSOL Energy, and Southwestern Energy; all three down right at 77%.

So, if you avoided energy and went with the simple idea of the FANG stocks: Facebook, Amazon, Netflix, and Google; that simple formula makes you a stock picking genius. That doesn’t mean the FANG stocks will deliver in 2016. After all a trade can get crowded; case in point, Apple, the most widely held stock, lost 4% on the year.

The Dow Industrial Average started the year at 17,823 and closed at 17,425, for a loss of 398 points, or about 2.2%. Just a reminder, the Dow hit a record high of 18351 back in May and we did enjoy some milk and cookies this year; but it’s a long way from May to December.

The top performers in the Dow include Nike + 31% YTD, McDonald’s + 26%, Home Depot + 26%, and GE + 22%. The big losers on the Dow were Walmart – 28%, Caterpillar – 25%, American Express – 25%, and Chevron – 20%.

The Nasdaq Composite started the year at 4736 and closed the year at 5007 for a gain of 271 points or about 5.7%.

The Russell 2000 index started the year at 1204 and finished the year at 1135, down 69 points, or just under 6% negative for the year.

There are approximately 3,700 publicly traded companies on the US exchanges, and filtering out the S&P 500 stocks and the OTC stocks, the top performers included Eagle Pharmaceutical + 462%, Exelixis + 300%, Galapagos + 239%, and Prothena + 242%; all four are basically biotech companies. Great returns but long odds.

European markets ended the year mixed. Germany’s DAX gained 10%, while Italy’s MIB was the top performer, up 13%. On the downside, Britain’s FTSE lost 5% and Spain’s IBEX fell 7%. The major Asian indexes were mostly higher. Hong Kong’s Hang Seng lagged, losing 7%. Japan’s Nikkei gained 9%. And I’m sure you remember when China devalued the yuan in August and their stock market suffered massive losses; when all was said and done China’s Shanghai Composite finished the year with a 9% gain.

Jamaican stocks were a pretty good place to invest this year; the island nation’s index rose more than 80%. As for losers, political woes and lower oil prices have hurt the Ukrainian equities index, which has tumbled 56% year-to-date.

Morgan Stanley Institutional Growth is the top performing mutual fund of 2015, returning 11% so far this year; pretty good, but it is still below the fund’s own five-year average return of 14.6%.

The year’s best performing ETF position was VelocityShares 3x Inv Natural Gas ETN, a triple-leveraged ETF meant to track the inverse price movement of natural gas. Because natural gas prices fell 33% in the past year, this ETF climbed more than 200%.

Excluding leveraged ETFs, and those that track the inverse of a commodity or index, the best-performing ETF of 2015 is the Market Vectors ChinaAMC SME-ChiNext ETF, which emulates bonds issued by China.

As 2015 comes to an end, so does Q4. And that means corporate America will announce the financial results of their fourth quarter in a few weeks. According to FactSet, earnings for the S&P 500 are expected to have fallen 4.7% during the final three months of the year. If so, it would mark three consecutive quarters of year-over-year declines in earnings; something that hasn’t happened since 2009.

US Treasuries lost ground in 2015. Treasury yields put in their lows for the year in January.

The yield on the two-year surged to fresh six-year highs after the Federal Reserve announced an interest-rate increase in December. For the year, the two-year rallied 60 basis points to 1.07%. The 10-year yield put in its 2015 high of 2.48% in June before ending the year up 41 basis points at 2.27%. Selling at the long end caused the 30-year yield to rise 28 basis points to 3.03%. The yield on the long bond put in its 2015 peak of 3.24% in June. For the year the long bond lost 2%.  The 3-month Treasury bill returned 0.11%.

As for corporate bonds, high-yield debt sold by companies with more fragile balance sheets had a tough 2015. In particular, it was not a good year to hold bonds from Arch Coal, which took three of the bottom spots ahead of a potential bankruptcy filing.  Investment-grade corporate bonds sold by companies with relatively strong balance sheets fared better, but not by much. People are still avoiding high-yield debt from the energy sector, but elsewhere you’re seeing some stability. In a world where the 10-year Treasury is yielding 2.25%, 8% or 9% will still attract attention for someone willing to chase yield.

The US dollar rallied in 2015. The US Dollar Index climbed 9% in 2015. The Canadian dollar was the worst-performing major currency versus the greenback, plunging 16.4% to 1.38 per dollar as a result of the weakness in oil prices. The euro was also hit hard, falling 10% to 1.09 as the European Central Bank announced a policy of negative interest rates. The Swiss franc could be the lone major currency to gain versus the dollar.

In January, the Swiss National Bank removed its euro-franc floor, causing the Swiss franc to skyrocket. The currency hit a high of .83 per dollar, up 16%. By the middle of March, however, virtually the entire move had been erased. The franc is up 0.2% at .99 per dollar. The Brazilian real lost almost half its value and is looking like it has hit bottom, or at least it should within the next 6 months.

Commodities had a really ugly 2015. Precious metals saw some early strength in 2015 but sold off throughout the year after their January gains. Gold sank 10% to $1,060 an ounce and silver lost 12% to $13.80 an ounce. On the industrial side, copper plunged 25% to $2.13 a pound.

2015 has been the year of the double dip for crude oil. Prices were recovering until Greece voted to leave the Eurozone for a few minutes. Then after their banks were drained, they decided to stay just a little bit longer.

You also had the China stock market crash and OPEC started an old fashioned price war against US shale players, plus the supposed return of Iranian oil as sanctions are supposed to be lifted. But hold on, is it a done deal? The Wall Street Journal is reporting that the US is going to put more sanctions on Iran which may cause some problems for the return of Iranian oil back to the market.

For the year crude oil tumbled 31% to $37.05 a barrel as oil inventories swelled. An unseasonably warm fourth quarter pushed natural gas down to $1.75 per million British thermal units, but a late rally saw the energy component end 2015 down 19% at $2.37.

The Thomson Reuters CRB commodities index fell 24% to six-year lows. While coffee slumped 25 percent, cotton and sugar are in positive territory for 2015. Cocoa prices were up more than 18% on the year.

Next week’s economic calendar includes a couple of reports from the ISM and then next Friday we get the monthly jobs report for December. Also, we’ll start seeing some fourth quarter earnings reports trickle in.

Just because we can look back on 2015 doesn’t mean we can see the future. The only thing we know with any degree of certainty is that 2016 will be different. So good luck to you in the New Year.

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