U.S. stocks advanced overall in 2014, but sounded a retreat for the first month of the year – not unlike what happened in the markets last January. And even though January was down last year, the domestic equity markets still turned in a decent performance for the year. Many market observers, including Raymond James Chief Investment Strategist Jeff Saut, had predicted a pullback during the first quarter of 2015 amid concerns about slowing global growth, declining oil prices, eurozone deflationary issues and the strong dollar’s effect on American exports.
The latest gross domestic product report showed the U.S. economy expanded at a slower rate than expected in the fourth quarter – a 2.6% annual rate compared to a 5% pace in the previous quarter. Lower gasoline prices are expected to provide a significant benefit to consumers and business in 2015. So, currently what looks good for the economy has created many cross-currents for the stock market. While we believe this is temporary, we also believe that volatility is back in the U.S. market in 2015. One of the cross-currents was the deflationary tone of the U.S. market being transferred from Europe to this country which has favored bonds because of the continual lowering of interest rates.
The only market that went straight up in 2014 was the S&P 500, such that valuations in this country are much higher than in places like Europe, China, India, etc. which appear to be a more compelling value than the U.S.