Market Overview: Fourth Quarter 2015

Stocks rallied in the fourth quarter, with U.S. stocks rising 7%, international stocks up about 5% and even Emerging markets eeking out a small gain.

However, 2015 as a whole was still a poor year for investors. Financial markets fell across the globe including just about all asset classes (stocks, bonds, real estate, commodities, etc.). In the U.S., the price of the S&P 500 Index fell, but was up 1% if you include dividends. Sadly, that was the best performance among the major global stock markets. What’s more, the breadth of the rise in the S&P 500 was extremely narrow. Most stocks fell during the year. Without the help of just four major technology/internet companies (Facebook, Amazon, Netflix and Google) the Index would have fallen more than 2%. So there were very few places to escape the damage.

Developed International Stocks (MSCI Index) lost 0.49% for the year. This is a measure of the major foreign markets such as Japan, Europe and Great Britain. 2015 marked the third year in a row that international stocks underperformed U.S. Stocks. A major headwind weighing on the performance of international stocks was the strength of the U.S. dollar. The dollar strength reduced international returns by 6% and emerging market returns by 9%.

Other factors weighing on international returns were low and falling oil prices, weakness in China’s economy and Middle East conflicts. Emerging market returns were down particularly hard, falling 15%.  Weighing on Emerging markets were oil prices, China and the strong U.S. dollar.  See the chart below which illustrates plunging oil prices.

Bond returns offered little comfort to investors. The benchmark Barclay’s Composite bond index lost 0.6% during the fourth quarter and was only up very slightly for the full year, 0.6%. The biggest news by far in the bond market was the Federal Reserve raising the Fed Fund rates to a range of 0.25% - 0.5%.

Except for 2013, when the core bonds market fell 2%, 2015 delivered the worst bond performance since 1999. With interest rates due to kick up over the next few years, bond returns may not get much better any time soon.

All references in this publication referring to our average allocation or “typical portfolios” reflect those of the fully discretionary accounts of clients with moderate risk profiles. Actual client portfolios are tailored to individual client circumstances and asset allocations may vary.  Any reference to returns reflect the performance of asset classes, are for illustration purposes only, and do not reflect the returns of any specific investment of Smith & Howard Wealth Management. No representation is made that any investment decisions discussed herein have been profitable in the past or will be in the future. Past performance is no guarantee of future results. A list of all recommended investments is available upon request.