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January 2015 Market Recap

January 2015 is now in the books.  Let’s reflect on the beginning of the year.  For portfolios, it was bad for equity prices and good, not great, for bond prices.  The S&P 500 was down 3%, the Dow Jones Industrial Average was down 3.57%. Just when we were starting to think large US companies would stay on top forever! Moving down the equity asset classes, mid growth declined .71%, mid value declined 2.41%, small growth declined 1.37% and small value declined 3.72%.  Emerging markets were positive, barely, at .55% (MSCI EM PR USD) and the rest of the world gave up some ground, declining .35% (MSCI World exUSA NRUSD).  Bond prices were up just shy of 2%.  There has never been a year when January was negative and the year-end return was greater than 10% for the US market.  UNTIL last year!  Could this year be a repeat?

On the good news front, the Consumer Price Index for all urban consumers (the headline rate) declined .4% in December and increased .8% for all of 2014.  Quantitative easing and fiscal stimulus have not caused inflation as feared seven years ago.  They may have prevented deflation.  Which brings us to Europe.  They are suffering through deflation and their central bank, The European Community Bank, announced quantitative easing in the form of $60 billion, give or take, of bond purchases each month for a total of over $1 trillion in monetary easing.  The inflation hawks will make no sounds.  This is one-fourth the monetary stimulus of the US Fed and the situation is arguably worse.  However, this policy should benefit the European economy over time.  So that is good news.

There was also a shred of good news in the US GDP number (up 2.6% for the fourth quarter 2014).  Spending by US consumers, 70% of our economy, increased over 4% during the fourth quarter.  Jobs are being created and filled at a significantly higher rate. More good news.

The consumer is also benefitting from low gas and oil prices.  Good news for them but bad news for oil companies.  There are more consumers than oil companies so for the overall economy that is good news. 

Right now, based on the fundamental economic data we have, we expect a single digit return for US equities, low single digit total returns for bonds (we’ll go out on a limb and say no interest rate hikes for 2015), and low double digit returns for international stocks both developing and emerging markets.  We strive to make your portfolios work for you by paying dividends and interest.  We also pursue price appreciation in a risk conscious manner.  

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