January 2015 Monthly Strategy Dashboard

Looking back on 2014 one word comes to mind in capturing the essence of the market last year: “resilient.”

Resilient indeed as the market seemed to seek out catalysts on 6 distinct occasions over the course of the year to justify respective pullbacks or “mini” to “partial’ corrections that ranged from declines of 3% to just under 7.5% within a short period of time (see page 16).

Each of the 6 pullbacks we identify was followed by a rebound and return by the S&P 500 to the upward trajectory established at the beginning of the bull market in March of 2009.

In 2014 such “market behavior” resulted in 54 record highs for the S&P 500 that carried the broad market 11.39% higher to deliver a total return with dividends reinvested of 13.68%.

Catalysts for declines last year included:          

• Effect of bad weather on Q1 growth;
• Economic growth concerns tied to the end of QE;
• Questions about the sustainability of Revenue and Earnings growth;
• Eurozone deflation risk;
• Japan deflation risk;
• China slowing;
• Geopolitical risk from Russia/Ukraine and Middle East;
• Prospective risk from a shift in monetary policy by the Fed towards normalization expected in 2015;
• Worries about the effect of dollar strength on future earnings of U.S. multinationals;
• Confusion as to whether the substantial drop in the price of oil will be a boon to or a risk to economic growth stateside as well as elsewhere around the world;
• Small Cap valuations (Russell 2000);
• Valuations among media stocks, Internet and Biotech stocks; and
• Ebola pandemic risk.

Each of the respective 6 declines identified in our chart on page 16 resulted in the market and investors taking pause to ponder (and worry) followed by a rebound, usually attributable to key economic data that underscored improved fundamentals and the sustainability of earnings growth.  Markets found further support from a consistently transparent Federal Reserve.  
 
From our perspective on the radar screen investors have reason to expect that 2015 will show similar resiliency to challenges along the timeline of the market’s journey in the New Year as stateside fundamentals continue to show a bias for growth and monetary policy makers remain vigilant, and take into account disinflation risk stateside, deflationary risks in Europe and Japan, as well as collateral risks in emerging markets that include China’s planned economic transition.
 
Stay tuned

 

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