December Market Review

January 15, 2016

Shortly after the end of each month, our Chief Investment Strategist David Klassen provides a review of the market and our funds’ performance. Following is a summary of December — 

Markets 

  • Global financial markets ended 2015 with declines in the month of December.
  • The S&P 500 ended the month of December down 1.58%, but up 7.04% for the 4th quarter (Q4) and up 1.38% for the year. The Russell 2000 Index, which tracks domestic small cap stocks, was down 5.02% in December, up 3.59% for Q4 and ended the year down 4.41%.
  • The international developed equity index (MSCI EAFE) was down 1.35% in December, up 4.71% in the 4th quarter, and down 0.81% for the year. The emerging markets index (MSCI EM) was down 2.23% in December, up 0.66% for Q4 and ended the year down 14.92%.
  • The Japanese Index (Nikkei 225) was down 3.61% in December, up 9.46% in Q4 and returned 9.07% in 2015.
  • In December, the 30-year bond yield increased 5bps to 3.02%, the 10-year increased 7bps to 2.27%, while the 5-year decreased by 11bps to 1.76%. Bond yields move opposite prices, so treasury prices generally decreased. The Federal Reserve increased the overnight lending rate by 0.25%.
  • Corporate bond prices decreased in December and in the 4th quarter, with the Barclays Aggregate Index down 0.32% in December, down 0.58% for Q4, but up 0.55% for 2015. The Credit Suisse Leveraged Loans Index (bank loans) was down 1.96% for the 4th quarter, and was down 0.36% for 2015.

Economic & Geopolitical Headlines 

  • The US economy, measured by real gross domestic product (GDP), increased at an annual rate of 2.0% in the third quarter of 2015, according to “third” estimates released by the Bureau of Economic Analysis. This deceleration in real GDP follows a relatively strong second quarter, when real GDP increased by 3.9%.
  • The Federal Reserve met in December. This meeting was one of the most anticipated for 2015; the Federal Reserve raised interest rates for the first time since 2006. The Federal Open Market Committee (FOMC) decided that economic outlook was encouraging enough to begin raising short-term interest rates. Interest rates were increased by 25 basis points.
  • Economic activity in the manufacturing sector contracted in December for the second consecutive month. A reading of 48.2 in December was registered, according to the Institute for Supply Management (ISM), versus 48.6 in November, a decrease of 0.4 percentage points. A reading above 50 is considered economic expansion and below 50 is considered contraction.
  • The US labor market continues to strengthen. The December increase of 292,000 jobs was significantly higher than economists’ forecast of 210,000. The unemployment rate remains unchanged at 5.0 percent in December, which remains the lowest level since April 2008. October and November employment numbers were revised up by a combined 50,000 jobs. In 2015, job growth averaged 220,000 per month. Over the year, the unemployment rate is down by 0.7 percentage points.
 
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