December market review

January 20, 2015

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


  • Financial markets concluded 2014 with mixed performance in December, and oil plunged extending sharp declines of the previous month.
  • The S&P 500 was down 0.25% for December, up 4.93% for Q4 and finished up 13.69% for 2014. The Russell 2000 index, which tracks domestic small cap stocks, was one of the better performing U.S. equity indices, up 2.85% in December, up 9.73% for the quarter but only 4.98% for 2014.
  • The international developed equity index (MSCI EAFE) was down 3.46% in December, increasing losses, down 3.57% for the quarter and 4.90% for 2014. This underperformance was again driven mainly by the impact of translating returns in weak underlying currencies (euro, yen) back into dollars for U.S. investors. Emerging markets (MSCI EM), were down 4.61% in December, down 4.50% for Q4 and finished the year down 2.19%.
  • The Japanese Index (Nikkei 225) returned -0.05% in December but was up 7.90% for Q4 and up 7.12% for 2014. The US dollar rose against major currencies in December, reaching a 7-year high against the Japanese yen.
  • The U.S. fixed-income yield curve flattened in December, driven by the increase in the 5-year yield and a decrease in 30-year yield. Both 5-year and 30-year yields declined by 30bps. The Federal Reserve again left the overnight lending rate unchanged at 0-0.25%.
  • Corporate bond prices increased in December. The Barclays Aggregate Index was up 0.09% for December, 1.79% for Q4 and up 5.97% for 2014. The Credit Suisse Leveraged Loans Index (bank loans) was down 1.10% for December, down 0.37% for Q4 but up 2.05% for 2014.

Economic & Geopolitical Headlines

    • According to estimates released by the Bureau of Economic Analysis, the U.S. economy, measured by real gross domestic product (GDP), increased at an annual rate of 5.0% in the third quarter of 2014. This is an increase from the prior estimate of 3.9% growth and follows the strong growth rate in the second quarter.
    • The Fed met in December for the final time in 2014. Chairwoman Yellen stated that the Fed would be patient and reiterated, yet again, that the Fed has no intention of raising rates in the near future. Speculation that the Fed might raise rates earlier than forecast (mid-2015) was put to rest by the statement.
    • Expansion in manufacturing in the U.S. continued but was slower in December. The December PMI reading came in at 55.5, a decrease of 3.2 percentage points when compared to November, the second consecutive monthly decrease. A reading above 50 is considered economic expansion.
    • U.S. job growth increased in December. The Labor Department reported total nonfarm payroll employment increased by 252,000 in December, beating analysts’ forecasts, which was the eleventh consecutive month with job growth over 200,000. Average job growth per month in 2014 was 246,000 compared to 194,000 in 2013. The unemployment rate declined to 5.6%, the lowest since June 2008.
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