KFA Blog

4th Quarter 2014 Market Commentary

By:  Lisa Thuer - Senior Trading and Research Specialist


Where have we been – 2014 and where are we headed – 2015?

Continued recovery in the U.S. economy was the theme for most of 2014. Job growth, increased industrial production and strengthening of the U.S. Dollar were the major stories. The U.S. stock markets were the place to be in 2014. Large-cap value led the way until November 30th when large-cap growth took over. Small-caps started out the year weak and had a full turn around when they led us out of the correction in October. The S&P 500 Index was in the black and GDP growth increased in four out of the past five quarters. Usually in such an environment, cyclical stocks are more likely to outperform the noncyclical sectors. However, the leading sectors were utilities, healthcare, consumer staples outperforming cyclical sectors like consumer discretionary and financials. If you followed the “Sell in May and go away,” this year you missed some upside.

Investments outside of the U.S. had a difficult year, especially if timing was wrong. Europe was doing well in the beginning part of the year until it plunged six months later. Japan was the opposite, having a weak economy until there was an announcement of another round of stimulus. Geopolitical events, such as the Russia-Ukraine conflict, sent jitters through the markets along with the threat of ISIS. One also cannot ignore the media overblown Ebola epidemic. A select few emerging markets did prevail such as Japan, India and China.

Let’s not forget the elephant in the room - oil. The drop in oil sent the markets on a temporary downward spiral. Why? With the oversupply of the commodity, will there be bond defaults, layoff of jobs, etc? Falling oil prices will benefit oil-importing countries as opposed to oil exporters, such as Russia, Brazil, South Africa, and Middle East countries. Once all this processes – we should see good news for manufacturing companies worldwide, more money in consumer pockets and oil companies who were rich in cash to begin with, be able to absorb the low oil prices.

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