Market Digest – Week Ending 12/24
Markets enjoyed some holiday cheer, with the S&P 500 gaining 3% in a short trading week. There wasn’t much news and it seems many investors are still trying to sort out the implications of last week’s Fed rate hike. At least for now the markets are viewing the plan for slow and steady rate increases in a positive light. Government bonds fell moderately while high yield corporate bonds recouped some of the month’s earlier losses.
S&P 500: 2,061 (+3.0%)
FTSE All-World ex-US: (+1.9%)
US 10 Year Treasury Yield: 2.24% (+0.05%)
Gold: $1,076 (+0.9%)
USD/EUR: $1.095 (+0.7%)
• Monday – US benchmark oil prices dropped below $34 a barrel for the first time since 2009.
• Tuesday – Existing home sales dropped 10% in November, but much of the decline was attributed to new regulations which lead to closing delays. The number of existing homes for sale dropped 3%.
• Wednesday – The University of Michigan December consumer sentiment index rose to 92.6. The average for the year was the highest since 2004.
• Thursday – The US ramped up air strikes against ISIS as Iraqi forces try to retake Ramadi.
• Thursday – Investors pulled $28.6 billion from mutual funds last week – the most for a seven day period in more than two years. ETFs continue to accumulate funds at the expense of mutual funds.
Thursday’s rally brought the S&P 500 index back into positive territory for the year – barely. It is now up 0.4%. The return on the US aggregate bond market has provided investors with a 0.2% total return. Meanwhile, international assets are down. The FTSE ex-US Stock Index is down about 6% and international bonds in dollar terms are down even a little more than that. Commodities are down a lot.
This means most investors have lost money this year, which is always disappointing. But investing is a long-term endeavor where cumulative returns are what matter – not calendar years. Our brains are trained to focus on winning or losing, but in investing, magnitude is what matters. Winning the Super Bowl by one point is still winning the Super Bowl. But finishing a year up a few percent or down a few percent doesn’t have much long term impact. There will be big up years and big down years ahead. Consistency will win the game.
Year-end is always a good time to review your investment strategy and make sure you are comfortable with it. If you are loaded up on US Large Cap Growth stocks because that is what has done well the last five years, now is the time to decide if you are comfortable moving forward with that into 2016. No one knows when, but leadership will shift at some point. It is the big losses that really damage net worth over time.
2015 may finish in the red, but it is still a bull market, and for most there is a lot to be thankful for. All of us at Personal Capital wish you a very merry Christmas.
Craig Birk, CFP®
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