Sorry! We don’t have the S&P 500’s robust momentum story to share this time around even though 2015 turned out somewhat eventful. This year, the markets witnessed the Greek debt negotiation drama, the record surge in US dollar, currency devaluation in China and the China-led global market rout, the plunge in biotech stocks following price gouging concerns, and finally the first rate hike in a decade. Energy prices continued to slump.
Unlike the record gains in 2013 and 2014, and the decent gains scored in 2012, the Standard & Poor’s 500 (.INX) is struggling to wrap up 2015 in the green. The year was also devoid of multiple record highs that the S&P 500 boasted earlier.
Much like 2014, the S&P 500 had started the year on a dismal note, with losses in January but a rebound in February. However in 2015, the S&P 500 went to score more losses and minute gains thereafter; before suffering the market rout in August.
With just today’s trading session left; the S&P 500 is up a meager 0.2%, or 5 points. In contrast, the S&P 500 had added 11.8% in 2014 and 31.3% in 2013. If the S&P 500 ends in the red, it would be its worst year since 2008. A finish in the green, though with meager gains, will help it close with yearly gains for the fourth straight time.
S&P 500 Performance in 2015
|
S&P 500 Performance in 2015 |
|
|
Month |
Returns (%) |
|
January |
-3.1 |
|
February |
5.5 |
|
March |
-1.7 |
|
April |
0.9 |
|
May |
1.1 |
|
June |
-2.1 |
|
July |
1.2 |
|
August |
-6.3 |
|
September |
-2.7 |
|
October |
8.1 |
|
November |
0.1 |
|
December* |
-0.8 |
|
1H2015 |
0.2 |
|
2H2015* |
0.01 |
*Returns as of Dec 30
The year started with concerns related to lower global growth projections, oil slump, dollar strengthening and Fed interest rate hike apprehensions. Amid this, GDP data was of little help. Beginning with a harsh winter and dismal earnings releases, economic data were mixed in the subsequent months. At the end of the first half of 2015, the S&P 500 was up 0.2%.
After the first half ended with minute gains, the benchmarks added modest gains in July but were exposed to a bloodbath in August. Concerns about China and uncertainty over the timing of a rate hike weighed down on the month. Benchmarks also closed in the red following the yuan devaluation.
A slump in oil prices crushed energy stocks before a rebound in prices late in the month. The S&P 500 and the Nasdaq registered their steepest monthly losses since May 2012. The Dow recorded its biggest monthly decline in more than five years.
Markets experienced another difficult month in September on familiar concerns surrounding China, oil prices and soft domestic economic data. Most domestic economic numbers, save GDP data and unemployment rate, raised apprehensions. Also, uncertainty about the timing of a rate hike dominated in the first half.
However, October was the saving grace, when the S&P 500 and fellow benchmarks eroded most of the year-to-date losses. Markets posted their best monthly performance in four years in October. Stocks recovered from their deepest correction, also in four years, in October to post strong gains. In a surprise move, China’s central bank cut key rates, leading to further optimism. The S&P 500 soared 8.1% in October.
November was again lackluster and the S&P 500 could gain only 0.1%. Encouraging third-quarter earnings reports and merger and acquisition news had a positive impact on the benchmarks. Meanwhile, the Fed indicated that a December rate hike was in the offing. Certain international events such as multiple terrorist attacks in Paris, greater violence in the Middle East, news regarding the shooting down of a Russian fighter jet near the border of Syria and concerns about China’s economic situation dampened investor sentiment.
On the second last trading session of 2015, markets were pulled back again after a slide in crude prices. This was indicative of the mood that prevailed through most part of 2015; as crude price declines affected markets on most days. The Energy Select Sector SPDR ETF (XLE) is 2015’s biggest decliner among the S&P industry groups. It has nosedived 24.4% so far in 2015.
Key Events in 2015
Greek Debt Drama
Negotiations between Greece and its creditors continued early in the year, but on the final day of the first half of 2015 the country defaulted on its debt repayment. In January, Greece’s finance minister Yanis Varoufakis had rejected the extended bailout program. February started on a tense note after the ECB cancelled its acceptance of junk-rated Greek government debts as security for regular central bank loans.
Grexit concerns intensified again in May. Lingering uncertainty over a deal between Greece and its creditors played foul in the first week of June. At the end of the first half, Greece defaulted on IMF repayments despite submitting a fresh two-year aid proposal to its creditors. The latest update is that Greece is appealing to Euro zone partners to ‘keep it afloat.’
In July, after much heartburn for investors, Greece reached an agreement with its lenders on a bailout deal. Among the other terms of the agreement, Greece needs to broaden its tax structure and improve long-term sustainability of pension schemes.
China’s Yuan Devaluation & Market Rout
Chinese government agencies’ efforts to curb the market selloff showed little promise. The slump in China’s equity market plagued investors through July. On a particular trading day in July, the Shanghai Composite had tanked 8.6%, recording its worst one-day slide since Feb 2007.
In August, The largest devaluation of the yuan in nearly 20 years triggered a worldwide decline in stocks. Also, dismal data aggravated losses for the China stocks which weighed on investor sentiment in the US. China’s main stock index slipped into the red for the year, while it plunged almost 38% from its peak in mid June. The People’s Bank of China (PBOC) decided to cut interest rates for the fifth time since November.
On Oct 23, the PBOC announced on Oct 23 that it was reducing key rates to boost the economy, which was on the verge of experiencing its lowest annual growth rate in 25 years. This was the sixth time that the PBOC reduced key rates this year.
US Dollar Surge
The US dollar achieved a 12-year high and had a meteoric rise against the euro early this year. This had led to calls for dollar-euro parity. However, a stronger dollar triggered off concerns about the multinationals’ earnings numbers, as the stronger dollar would impact exporters. This was proven true, or at least the ‘dollar scapegoating’ was a theme in reading the first-quarter results.
While the dollar rally somewhat faded in the second and third quarters, the greenback started moving higher again since Oct 14, and gained more than most major currencies. Following the rate hike on Dec 17, the dollar strengthened and is expected to move further up.
Biotechs Bite the Dust & Rebound
Biotech companies were under pressure even before Hillary Clinton’s far-reaching comments on the biotech sector in September. However, the slump intensified after US Democratic presidential hopeful Hillary Clinton said she will lay out a plan to restrict “price gouging” in the specialty drugs market. The iShares Nasdaq Biotechnology (IBB) registered a weekly loss of 13.2% for the week ending Sep 25, witnessing its worst weekly performance in seven years.
However, biotechs rebounded strongly in recent months banking on encouraging third quarter earnings results from key players. Moreover, product approvals and encouraging pipeline updates are expected to boost the sector. The iShares Nasdaq Biotechnology currently has a year-to-date gain of 13.1%.
Fed’s First Rate Hike in a Decade
Through the year, market participants contemplated the timing of the first rate hike. A continuous market mover was the guessing game of the first rate hike. In the first half, the nature of mixed economic data had somewhat restricted the Fed from giving a clear indication on the timing of the first rate hike.
While minutes from the Federal Open Market Committee’s (FOMC) Apr 28–29 meeting had stated that officials saw a rate hike in June as “unlikely,” by the end of the first half the Federal Reserve signaled a hike at a slower-than-expected pace.
Later on, indications were strong that the Fed might hike rates in September. But the volatility in August and other factors reduced those chances. The inconclusiveness regarding the Fed rate hike is what was prominent ahead of the September’s FOMC meeting. Eventually, the FOMC cited weak global growth scenario and low inflation rate as the main reasons behind their decision to not hike rates in September.
Finally on Dec 17, and as widely expected, the central bank raised its key interest rate for the first time in nearly a decade. This assured investors that the US economy is resilient enough to bear the future increase in borrowing costs. However, the hike in the federal funds rate was subdued since the Fed emphasized a gradual path of rate increases. The Fed increased its short-term borrowing rate to a range of 0.25% to 0.50% as policy makers unanimously voted in favor of a rate hike.
Top S&P 500 Performers of 2015
The chart below lists the top 10 S&P 500 performers on a year-to-date basis:
|
Top S&P 500 Performers |
YTD Return |
|
Netflix |
139.15% |
|
Amazon.com |
122.03% |
|
Computer Sciences Corporation |
97.86% |
|
Activision Blizzard |
97.69% |
|
NVIDIA Corporation |
69.30% |
|
Cablevision Systems |
57.72% |
|
VeriSign |
54.63% |
|
Reynolds American |
50.41% |
|
First Solar |
50.20% |
|
Starbucks |
50.16% |
We’ve shortlisted five top S&P 500 performers based on year-to-date returns. All these stocks have an impressive Zacks Rank and positive current year estimated growth rate, so they are poised to move north in the near term as well.
Amazon.com, Inc. AMZN is one of the largest online retailers in the world. It is also the leading provider of cloud infrastructure as a service to enterprise customers. Amazon.com generates strong cash flows. The nature of business does not leave too much room for differentiation, so price competition is intense.
Amazon has returned 123.6% year to date. It carries a Zacks Rank #2 (Buy) and the current year growth estimate is significantly high.
First Solar, Inc. FSLR designs, manufactures, and sells solar electric power modules using a proprietary thin-film semiconductor technology. First Solar is able to develop economically sustainable businesses as it has established its expertise in PV generation solutions as well as in other areas of the solar-value chain.
First Solar has returned 50.2% year to date. It carries a Zacks Rank #2 (Buy) and the current year growth estimate is 16.3%.
Alphabet Inc. GOOGL is one of the leading providers of target-based advertisements on the web. Alphabet has shown good execution to date, more or less maintaining share in a competitive, fast-growing search market. Its search market share is a big positive, which along with its focus on innovation, strategic acquisitions and Android OS should continue to generate strong cash flows
Alphabet, or formerly Google, has returned 48.9% year to date. It carries a Zacks Rank #2 (Buy) and the current year growth estimate is 11.2%.
Constellation Brands Inc. STZ has a formidable portfolio of well-known brands and is the largest wine company in the world. Moreover, it has a predominant position in the premium wine and beer segment in the U.S.
Constellation Brands has returned 46.9% year to date. It carries a Zacks Rank #2 (Buy) and the current year growth estimate is 16.3%.
Avago Technologies Limited AVGO is a leading diversified global supplier of analog semiconductors targeting the wireless communications, wired infrastructure and industrial/auto markets.
Avago Technologies has returned 46.5% year to date. It carries a Zacks Rank #2 (Buy) and the current year growth estimate is 77.8%.
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