Investment Commentary – December 29, 2014
Dow – 18,038.23 (12/29/14 close)
S&P 500 index – 2,090.57 (12/29/14 close)
10-year Treasury – 2.20% (12/29/14 close)
- In 2014, S&P 500 never dropped 4 days in a row. This is a sign of how relentless U.S. stocks have been in their march higher. This is the 1st calendar year ever in which the index has avoided 4 consecutive days of declines.
- Analysts think that 2015 will be another positive year for stocks.
- Last Friday, both the Dow and S&P 500 indexes hit all-time highs.
- The Fed remains on course to begin raising short term interest rates around mid-2015. Rather than a threat to the recovery, rate hikes will be indicative of confidence in the economy. Still, the Fed will raise rates at a measured pace in order to observe potential volatility in financial markets.
- Cheaper oil has further dampened inflation expectations but is a net positive for the U.S. economy, particularly as it reflects a production boom more than it does weakening global demand. Lower energy costs will boost Disposable household income, potentially adding to GDP if this windfall is spent.
- Despite an improving labor market and lower oil prices, consumer spending should continue to expand at a slow pace. The recent precipitous drop in oil and gasoline prices will leave the consumer at least temporarily better off. Because energy absorbs almost 10% of the average household budget, the recent drop in price amounts to about a 2.5% jump in real spendable income, a good portion of which consumers will no doubt use to improve the holidays, making the 4th quarter GDP look better than the fundamentals and longer-term prospects described above.
- But unless the oil price declines go deeper still, much less if oil prices bounce back up, the pace of consumption growth and overall growth in the new year should continue at a still substandard rate.
- In fixed income analysts like bank loans. In the U.S. bank loan market, analysts expect 2015 to continue on the path of 2014, with strong credit fundamentals driving steady performance. They also see strong earnings supported by a prolonged low rate environment. Defaults are expected to remain low in 2015.
- Analysts favor the technology and financial sectors. Analysts think the financial sector will benefit from rising interest rates, a strong dollar, improving credit quality and stronger loan growth as the U.S. economic expansion broadens.
The views presented are not intended to be relied on as a forecast, research or investment advice and are the opinions of the sources cited and are subject to change based on subsequent developments. They are not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.