Market Outlook
Looking ahead to pre-election year 2015, history suggests another double-digit S&P 500 is quite possible as all previous 3-year streaks were followed by a fourth double-digit gain. Furthermore, monetary policy remains highly accommodative with the European, Japanese and now Chinese Central Banks providing stimulus. Should this stimulus prove effective, global growth could accelerate and the S&P 500 could perform similar to the average performance of past fourth years (1945, 1952 and 1998)? At the very least, bullish pre-election year forces are likely to keep 2015 in the black.
U.S. stocks fell on Friday following a two-day rally as December's jobs report gave a mixed view of the economy, with financial shares leading the market lower. For the week, the Dow and Nasdaq were down 0.5 percent, while the S&P 500 lost 0.6 percent as all three major indexes fell back into negative territory for 2015. Friday's decline followed two days of more than 1 percent gains for the market, a rally fueled in part by minutes from the last Federal Reserve meeting, which reassured investors the central bank was in no hurry to start raising interest rates.
As seen in the graph below, over the last six months Treasury Bonds are outperforming all the major equity indexes. Conversely, Gold Mining stocks are in deep bear market territory as the bottom has fallen out recently.
Investor Analysis
Last week we pointed out “……Since 1929, January has been one of the seasonally strongest months for the S&P 500, with average and median price returns of +1.3%/+1.6% vs. average/median returns of +0.6%/+0.9% for all months. January has also had the second highest percentage of positive returns (64%) after December (75%). Returns have tended to be even stronger following years where the S&P 500 has double-digit gains, as it was last year. In these years, returns have averaged +1.8%, with positive returns 68% of the time……” Fourth-quarter earnings season officially kicks-off next week and we can expect continued triple-digit up and down price moves. Most of the technical indicators that we follow point toward the market continuing to fluctuate in a trading range.
The plunge in Energy stocks has been one of the main topics of discussion on financial news, but over the past month share prices appear to be trying to stabilize. Monitoring energy companies whose shares might lead a move higher when the energy sector recovers is probably a smart long term planning strategy. The Utility sector remains the best performing sector over the past month, but with earnings season starting up, bidding on Consumer Staples and Cyclicals could provide quick gains as the U.S. economic recovery moves forward. Financial stocks are down over the past few weeks because a lot of market pundits anticipate disappointing results when this sector starts reporting fourth-quarter earnings next week.
By Gregory Clay
Investment Strategist
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