There are some obstacles for stocks to continue to go up in 2015, but there is optimism that the bull market will continue. With no election coming up soon and a tendency for stocks to do well in the third year of a presidential term, there is additional optimism about 2015.
The Federal Reserve is likely to begin raising interest rates in 2015. This will add to volatility, slow down growth, and reduce the value of bond funds.
Major international economies (Europe, China, Japan) did not do so well in 2014, especially when compared with the US market. There is hope that a reduction in austerity combined with central bank actions could help foreign economies rebound in 2015.
In 2014, there were Russian invasions, quantitative easing ending, Ebola, a midterm election, oil prices falling dramatically, and other events that could have hurt the US stock market, but they didn’t. Since the 2008 crash, stocks have risen fairly steadily, with 2014 adding another year of solid gains (see graph below).
We learned again in 2014 that unexpected events should be expected and that a diversified portfolio will help weather these storms.
The US economy continues to look strong, with unemployment down to 5.8%, however foreign economies provide a significant risk.
Japan’s consumption tax increase caused its economy to go into a recession and a combination of restrictive policies and weak exports caused the European economy to stall.
It is expected that as the growth in the United States and United Kingdom continue in 2015, growth in Japan and Europe should improve.
The ongoing decline in oil is dragging down the stocks of commodity producers (here and abroad) but the lower oil prices help consumers.
The US stock market appears set for more gains into at least the first half of next year, although there are risks of higher interest rates and uncertainty in foreign markets. There is hope that ongoing global central bank activities can help to improve economic activity is areas such as the Europe, China, and Japan. However, we expect the performance in international countries to improve slowly and lag the US to start out the New Year.