Investment Commentary – January 7, 2015

Dow – 17,371.64 (1/6/15 close)
S&P 500 – 2,002.61 (1/6/15 close)
10-year Treasury – 1.96% (1/6/15)

· With another year in the books, analysts found it important to review returns in 2014. REITS were the top performers, as real estate markets around the world continued to recover. The S&P 500 rose nearly 14% after strong 2013, and outpacing small cap stocks for the 1st time since 2011. U.S. equities were the bright spot in the equity market, as both emerging markets and developed international markets declined -1.8% and -4.5%, respectively.

· Within fixed income, the Barclays U.S. Aggregate Bond Index rose 6% due to falling interest rates, while high yield bonds and emerging market debt struggled.

· Oil prices plunged again yesterday, exacerbating Wall Street’s New Year’s hangover. But oil’s sell-off is expected to extend a record-breaking decline in daily gasoline prices and push 2015 pump prices to their lowest yearly average since 2009. Oil prices have been pummeled due to a global supply glut, exacerbated by surging North American supply, a failure by OPEC to reduce supply and slowing growth in demand especially from Europe.

· The drop in oil and gas prices is economically equal to a global tax cut, an enormous fiscal boost to a global economy that is tapped out fiscally. This is the type of deflation that consumers and most businesses welcome. While falling energy demand is perhaps worrisome, the positive benefits far outweigh the negatives analysts believe.

· In the U.S., the economy seems to have ended 2014 on a strong note, and leading economic indicators suggest that growth should continue. Stronger growth buoys corporate earnings and generally should support stocks. However, there are exceptions to this. Most notably, it may put pressure on defensive stocks, many of which outperformed in 2014. This is particularly true for utilities companies, often viewed as a bond-market proxy.

· In Europe, the situation is very different. Markets are caught between the counterforces of growing geopolitical risk and the upside potential from further lowering of interest rates by the European Central Bank (ECB). The geopolitical risk in Europe is once again focused on Greece, where the parliament failed to secure the necessary majority to elect a new president. Another election is scheduled for Jan. 25. The potential for more political turmoil has sent Greek stocks and bonds tumbling.

· Analysts think that Emerging-market growth will slow down further.

· Analysts think that U.S. equities will be top performers in 2015.

· Analysts think that falling energy prices will be a longer-term tailwind for most sectors.

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.