Fourth Quarter 2015 Market Commentary

Unfulfilled Expectations

toppling chart

The equities markets ended with a whimper for 2015 and marked it as a year of unfulfilled expectations. While the forecast for 2015 was for significant market volatility, economists are still predicting continued opportunity for positive returns on equity investments. These forecasts were grounded in the belief of continuing improvement in the fundamentals of the US economy, the continuation of the quantitative easing in developed international markets, especially in Europe, and the hope for a recovery in commodities, primarily in the energy sector.

As we now know, in spite of the improvements achieved in the fundamentals of the US economy, the US and most of the world markets struggled and stumbled through the year never gaining the hoped-for momentum.  In the final analysis, domestic equities posted their worst year since 2008 with the Dow Jones Industrial Average down (2.2%) and the S&P 500 lower by (0.7%). The one bright note was the Nasdaq Index posting a positive 5.7%. International equities didn’t fare much different with the MSCI EAFE Index closing down (0.87%) and the MSCI World Index at (0.81%).

Both US and Global Fixed Income markets performed modestly. The Barclays US Aggregate Bond Index finished the year at 0.55%. The US High Yield market continued to feel the drag of depressed energy prices and was down for the year by (4.47%). The Citigroup World Government Bond Index finished the year at 1.00%. Continuing market volatility is forecast for 2016.

The US economic indicators continued to show strength in 2015 with unemployment at 5%, job growth of 2.65 million, core inflation at 2%, and wage growth of 2.5%. Additionally, strength was seen in existing home sales and in new construction and records were shattered for new car sales.

Considering all of these positives, the Open Markets Committee of the U.S. Federal Reserve Bank judged the economic recovery sufficient to implement a 0.25% increase in the federal funds interest rate. This action was taken fully considering world economic conditions, particularly the weakening economy of China teamed with a strong dollar which caused difficulty for US companies to sell outside the US and causing a slowdown in manufacturing.

Coming off a year in which few traditional assets have met their return expectations, one begins to hear the use of terms such as “taking a long-term view” and employing “patient capital.” Stated another way, in times such as these, investors should stay true to their investment plan and reaffirm a commitment to their long-term goals.

It is important to keep in perspective the recent market fluctuation in relation to what has occurred since 2009. For instance, in this six year period, the S&P 500 has more than doubled in value climbing from $932 on Jan. 2, 2009 to $1,932 at the market close on Jan. 8 2016.  Individuals who stayed the course and resisted the temptation to exit the market have ridden this wave, benefitting significantly.

UPAL consistently recommends a US and global multi-asset approached to diversification teamed with a buy and hold long term strategy. Further, we advocate disciplined regular investing as a method to use market volatility to your best advantage.

We have done our best to present the information contained in the above article fairly and accurately.  However, hypothetical investment performance is still potentially misleading.  Hypothetical data does not represent actual performance and should not be interpreted as an indication of actual performance. This data is based on transactions that were not made. Instead, the performance is simulated for illustration purposes only, based on knowledge that was available only after the fact and thus with the benefit of hindsight. Results do not include the impact of taxes, if any.  Some investors in UPAL funds may have earned more; other earned less.  A complete list of actual investment performance may be found on the UPAL Web site at under the Investments tab at the top of the screen. Past returns are not necessarily indicative of future results.  Future results will likely vary. These materials are subject to change without notice and, due to the rapidly changing nature of the security markets, may quickly become outdated. All materials and information presented are compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This information is distributed for educational purposes only, and it is not to be construed as an offer, solicitation, recommendation, or endorsement of any particular security, product or service. Investments are not FDIC-insured and may lose value.