January 2015 Financial Markets Summary

The instant-ness of communication means that we are never far from hearing about the next world crisis.  Truth is there ARE a lot of global political flash points, but that has always been the case.  We are bombarded by the electronic media, unlike the days of three or four total local TV channels, dial phones, and no talk radio.  There were some important events that had an impact on the investing world in 2014, none bigger than the 53% drop in oil prices.  Other newsworthy items were Janet Yellen’s appointment to lead the Federal Reserve Board, the near collapse of the bitcoin exchange, Russia’s annexing of Ukraine’s Crimea region, the continued political mess in the Middle East that terrorist group ISIS has capitalized on, the continued renaissance in domestic energy production, data breaches for several large consumer companies, the IPO for e-commerce giant Alibaba, health scare from Africa’s ebola epidemic, the end of QE3 as the Fed stopped buying government bonds, and not least of all, the huge rise in the value of the dollar against other world currencies.

2015 was an odd one in terms of global returns.  Among major indexes, the S&P 500 was the only double-digit gainer.  The more popular Dow had a very modest gain, while small cap stocks ended with low, single-digit gains.  International stocks were a different story. Developed and emerging markets were down for the year. Domestic bonds had very low gains, while foreign bonds had flat-to-negative returns.  Morningstar’s World Allocation average (U.S. and foreign stocks and bonds and commodities) gained about 2% for the year, and while that seems underwhelming, it illustrates the bizarre year for world markets. Commodities had a singularly terrible year, with the exception of coffee, that gained more than 50% after a drought in Brazil, and cattle, that gained 23% as extended drought has thinned herds. Other commodities lost value because of decreased demand.  Energy-related commodities were the worst hit, losing 30-48% as domestic production had a huge impact on world energy prices.  The Wall Street Journal suggests that low energy prices are “the new normal”.  In the meantime, lower energy prices will boost the economies of most industrialized countries.  Not so for Russia, Iran, and other energy-dependent nations.

America’s ability to continue outpacing its world-wide peers could come under threat in 2015.  While the U.S. economy is a bright spot in the world, things may be looking a bit better for the rest of the world.  Headwinds for 2015 could be a stronger dollar and higher valuations for U.S. stocks, as well as long-anticipated higher interest rates from the Fed.  One thing that could postpone higher rates is the lack of inflation, still running well below the Fed’s target of 2%.  Some money managers are looking for global stocks that could be poised to benefit from consumers having more money in their pockets, beaten-down energy companies whose valuations may make them attractive, and European multi-national stocks that traditionally pay dividends about twice the yield of U.S. stocks.  Will 2015 be the year of the dividend?

We remind investors to stay focused on what returns they need, rather than on the returns they might want.  Well-diversified portfolios will no doubt under-perform the S&P 500 when only that part of the market is strong.  Protect the money you might need to take from your portfolio over the next 3-5 years by keeping it in cash, CDs, or short-maturity bonds.  Remember that today’s headlines and tomorrow’s reality are seldom the same.

Asset Index Category Returns Three Month 2014 2013 10-Year
Dow Jones Industrials – Large Cos 4.6% 7.5% 26.4% 5.1%
S&P 500 Index – Large Companies 4.4% 11.4% 26.5% 5.4%
S&P 400 Index – Mid-Size Companies 5.9% 8.1% 31.5% 8.1%
Russell 2000 Index – Small Companies 9.3% 3.5% 37.0% 6.3%
MSCI EAFE Index – Developed Intl -3.9% -7.4% 19.4% 1.6%
MSCI EM Index – Emerging Markets -4.9% -4.6% -4.9% 5.8%
S&P Global Natural Resources Index -8.4% -9.6% 1.5% 6.2%
London Fix Gold Price Index -0.9% 0.1% -27.3% 6.2%
Domestic Short-Term Bond Index -0.1% 1.1% 0.5% 2.9%
Emerging Market Bond Index -4.0% -0.8% -7.2% 6.7%
Long-Short Equity Index 1.2% 2.8% 14.6% 5.3%
Bloomberg Commodity Index -12.1% -17.0% -27.7% 8.7%


Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment, strategy, or product or any non-investment related content, made reference to directly or indirectly in this newsletter, will be suitable for your individual situation, or prove successful. This material is distributed by PDS Planning, Inc. and is for information purposes only.  Although information has been obtained from and is based upon sources PDS Planning believes to be reliable, we do not guarantee its accuracy.  It is provided with the understanding that no fiduciary relationship exists because of this report.  Opinions expressed in this report are not necessarily the opinions of PDS Planning and are subject to change without notice.  PDS Planning assumes no liability for the interpretation or use of this report. Consultation with a qualified investment advisor is recommended prior to executing any investment strategy. No portion of this publication should be construed as legal or accounting advice.  If you are a client of PDS Planning, please remember to contact PDS Planning, Inc., in writing, if there are any changes in your personal/financial situation or investment objectives.  All rights reserved.