Looking Forward, Looking Back (Part 1)
Where is the market taking us?
The ancient Romans worshipped the god Janus, the god of beginnings and transitions. He had two faces, one looking forward and one looking at the past. The month of January is named for him. In order to prepare for the future, it was thought, we have to be aware of and understand the past.
While we don’t invoke Janus any more when we start something new or pass through a door, looking both forward and back around the beginning of a new year isn’t a bad idea. So what have we learned?
This was a tough year for almost all the markets. After doube-digit returns in each of the last three years, the S&P 500 was barely positive. Global stocks were negative, especially resource-oriented emerging markets. And bonds just managed to squeeze out a gain, based on their income. The best markets were growth stocks, REITs, and emerging market bonds; the worst were high-yield bonds, emerging market stocks, and energy stocks. A year ago the price of crude oil had fallen 50% to $55 per barrel. No one expected it to fall another 30% to $35.
Returns through 12-30-15. Source: Bloomberg
Investments that were touted as “sure things” turned out to be not-so-sure. REITs may have done well, but they were led by apartments, not health-care. And there were some surprises. The best international markets turned out to be Japan, Russia, and China—despite the turmoil of the energy markets, and Chinese markets.
The biggest lesson from all this is that markets are unpredictable. Last year’s best-performing sector—utilities—was one of the worst this year. High-yield bonds were supposed to be a refuge from rising rates, but they ended up vulnerable to weak oil prices. And sometimes a market or sector can be strong or weak several years in a row.
We don’t know the future. Just because US stocks have been the strongest performers doesn’t mean they’ll keep doing so. Stay diversified.
Douglas R. Tengdin, CFA
Chief Investment Officer