US stocks end 2015 mostly flat, capping volatile year

[Jonathan Fairfield]

US stocks end 2015 mostly flat, capping volatile year
ALEX VEIGA, AP Business Writer

The U.S. stock market took investors for a wild ride in 2015, but in the end it was a trip to nowhere.

Despite veering between record highs and the steepest dive in four years, the stock market ended the year essentially flat, delivering the weakest performance since 2008. That means if you invested in a fund that tracks the Standard & Poor's 500 index, you have little to show for the past 12 months.

"It's been mildly disappointing," said Michael Baele, managing director at the Private Client Reserve at U.S. Bank. "Any time that you come in toward the end of the year close to flat you always want a little bit more."

Markets overseas had their own challenges.

China's market surged in the late spring and then fell sharply in the summer despite several efforts by China's government to stem the decline. The Shanghai Composite Index ended the year up 9.4 percent. Japan's market finished flat after that country's government stepped up its economic stimulus program. In Europe, Britain's market ended the year down about 5 percent, while indexes in Germany and France turned in healthy gains of 9.6 percent and 8.5 percent, respectively.

In the U.S., the market got 2015 off to a slow start as investors worried about falling crude oil prices, flat earnings growth and when and how quickly the Federal Reserve would begin raising interest rates.

By May, the major indexes were hitting new highs. Even the Nasdaq bested its dot-com high-water mark set in March 2000.

The market didn't stay in milestone territory for long, though.

Worries about slowing growth in China and elsewhere gave reason for the Fed to pause and for investors to fret, even as the U.S. economy continued to create jobs and consumer confidence improved. Weak company earnings, largely due to the strong dollar and falling oil prices, didn't do much for the market's confidence.

By August, the anxiety had deepened and the market dropped sharply. The three major U.S. indexes went into a correction, commonly defined as a loss of at least 10 percent from a recent peak, for the first time in four years.

That slide didn't last long, either.

Within several weeks, the market had mostly bounced back. The Nasdaq composite returned to positive territory for the year, while the Dow average and S&P 500 remained slightly in the red until December.

In the weeks that followed, the S&P 500 inched back into positive territory, leaving the Dow as the only major market indicator negative for the year.

That held true until the last day of the year, when the S&P 500 index slipped back into the red.

The Dow ended down 178.84 points, or 1 percent, to 17,425.03 on Thursday. The S&P 500 index lost 19.42 points, or 0.9 percent, to 2,043.94. The Nasdaq composite fell 58.43 points, or 1.2 percent, to 5,007.41.

The S&P 500 ended the year with a slight loss of 0.7 percent. Once dividends are included, it had a total return of 1.4 percent. That's its worst showing since 2008, when it slumped 37 percent in the midst of the financial crisis. That figure also includes dividends.

"There was a lot of news that kept hitting the market and the market kept shrugging it all off and hung in there," said J.J. Kinahan, chief strategist at TD Ameritrade. "I'd say, given all that the market faced this year, it was pretty strong."

These were some of the key factors driving U.S. markets in 2015:

WAITING FOR THE FED

Wall Street watched few things more closely this year than the Federal Reserve. Traders had been predicting early on that the central bank would begin raising its benchmark interest rate as early as March. When that didn't happen, investors turned their focus to June, only to be disappointed again.

Eventually, in December, the Fed took action. It nudged its benchmark overnight borrowing rate higher, its first increase in interest rates in nearly a decade.

The Fed made it clear that it was expressing a vote of confidence in the U.S. economy by doing so and that future increases would be gradual. That helped reassure investors that the Fed wouldn't raise rates too quickly and thereby stunt the economy's growth.

"It really was central banks looming large over the market," Baele said. "The market had a fair amount of fear that the Fed raising rates was a risk to the market. It's turned around now."

CORRECTION ARRIVES

The bull market had racked up six years of annual gains by the time the calendars turned to 2015. The last time it had a correction was 2011. Historically, that's an unusually long time for the market to go without a meaningful pullback. That plus a string of record highs in late 2014 led many to think the market was overdue a drop.

The long-awaited correction finally arrived in August. Late in the month indexes dropped sharply as investors worried that a slowdown in China's huge economy could spread to other countries.

Yet after an 11 percent plunge between Aug. 17 and 25, and another, less steep drop in late September, the market began to struggle higher. By late November it had recouped all the losses from its late summer swoon.

Once investors determined that China's slowdown would not spillover to the U.S. and European economies, "then we had a very rapid recovery from that very sharp decline," Jeremy Zirin, chief equities strategist at UBS Wealth Management Americas.

EARNINGS DRAG

A big reason why the market finished flat in 2015 is that company earnings growth has also been largely flat.

That was due primarily to the impact of falling oil prices on energy sector earnings. Also, the rapid appreciation of the dollar constrained earnings for companies that do a lot of business overseas, including Procter & Gamble, Tiffany, Gap and Avon.

As a result, earnings growth for companies in the S&P 500 index went from 7 percent in 2014 to essentially zero in 2015, Zirin said.

Excluding energy, earnings for the rest of the S&P 500 would be up about 7 percent this year, Zirin said.

With so few companies producing meaningful growth, investors homed in on those that did. Among the biggest gainers: Facebook, Amazon, Netflix and Alphabet, Google's parent company.

"There's only been a handful of really strong performers on a market cap-weighted index that have driven us to performance while the majority of the indices and the majority of the stocks are actually negative for the year," said Darrell Cronk, president of Wells Fargo Investment Institute.

SLOW-GROWTH ECONOMY

The U.S. economy didn't do the stock market any favors in 2015.

It expanded at a slight 0.6 percent annual rate in the first three months of the year, depressed by unusually severe winter weather and disruptions at West Coast ports. The economy revved up in the next quarter, growing at an annual rate of 3.9 percent, but slowed to a gain of 2.1 percent in the July-September quarter.

Consumer spending remained a bright spot, however. That's one reason why consumer discretionary stocks, a category that includes big retailers and car makers, were the biggest gainers in the S&P 500.

-- (c) Associated Press 2016-01-03

[wonder6281]

Nice recap if you believe the lies saying the US economy is in recovery.

The truth is that it is in recession and after 7 years of ZIRP, QE has been a failure except for the banks and the rich.

The world economy is on steep decline!

If QE had been given directly to the consumer rather than hoping for a trickle down affect then economies would be humming along.

But it wasn't and didn't and the middle class had been destroyed and all that is left is the rich and poor.

Guess which one has the power?

We are heading into some very chaotic times.

[Suradit69]

It's misleading to regard the S&P 500 as flat on the year. A handful of growth/momentum stocks did all the heavy-lifting while the majority lost ground during the year.

...just about 60% of the S&P 500 stocks, 298, have fallen into correction territory, according to data from FactSet compiled by the Dow Jones stats group. Moreover, 23% of the index’s components, 135 stocks, have fallen into bear-market territory.

The US economy is chugging along, the best house in a bad neighborhood, but the strong dollar has negatively impacted multi-nationals' profits. Even if the dollar remains strong it won't rise at the rate shown in 2015 so year-on-year comparisons should improve in 2016.

Economists, who supposedly know more than the rest of us, suggest that there is an 18 month lag between low energy prices and significant increases in consumer spending, which would also spur increased domestic-generated profits. 2015 was not a great year for the brick-and-mortar retail sector, although the online sector ...Amazon, et al (and Alibaba for that matter) ... appeared to be beneficiaries. Car sales have been strong.

Black swans ... unpredictable (or at least not predicted) exogenous events ... along with the cyclical slump in commodities, have had a major impact. Fewer of the former and an improvement in the latter could be a catalyst for the stock market as well as the economy.

Edited January 3, 2016 by Suradit69

[ghworker2010]

I agree with suradits comments above. The growth stocks I invested in (on Nasdaq) gave me a 28% return.

[craigt3365]

Love the analogy. Best house in a bad neighborhood. Sums it up quite nicely! LOL

It's been a great run for those in the stock market the past 4 years. Fantastic. And even for the average US citizen, jobs are coming back. Unemployment is down to a respectable level. It will be interesting to see where things go from here....

[wonder6281]

With almost 1/3 of the population out of work how do they get a 5% unemployment. Oh that's right they don't count the participation rate and after 3 months you aren't counted as unemployed.

The only jobs that have been created are casual jobs. Manufacturing jobs are vanishing.

Over 1 million lay offs in 2015 and after the Xmas period expect the corporations to slash more to prop up their profit margin to ensure they collect their bonuses.

None of the bad data receives enough attention by the MSN.

ON I reports are heading negative and the dry batik index is at lowest levels since the great recession.

Being an election year in the US will see them keep propping up the system with more in payable debt.

When it all crashes it will be a collapse.

[wonder6281]

Fat fingers sorry.

PL I reports and unpayable debt.

[craigt3365]

http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-7

But although the world economy is quite weak it is far away from the apocalypse that the index apparently foretells. The reason that the BDI has taken such a precipitous dive is that it is a measure both of demand for shipping and of the supply of vessels. Sliding charter rates are more a reflection of the eternal optimism of shipowners than a calamitous foundering of the world economy.

[Gumballl]

Nice recap if you believe the lies saying the US economy is in recovery.

The truth is that it is in recession and after 7 years of ZIRP, QE has been a failure except for the banks and the rich.

The world economy is on steep decline!

If QE had been given directly to the consumer rather than hoping for a trickle down affect then economies would be humming along.

But it wasn't and didn't and the middle class had been destroyed and all that is left is the rich and poor.

Guess which one has the power?

We are heading into some very chaotic times.

Wow! I've never been classified before as being 'rich'; I've always considered myself mid- to upper middle-class. Yet surprisingly, without much wit, I have been able to recover all of my investment losses from 2008. The last 8 years of the US stock markets have run surprisingly well.

What have you been doing in the meantime? Sitting on your thumb waiting for a handout?

[Gumballl]

With almost 1/3 of the population out of work how do they get a 5% unemployment. Oh that's right they don't count the participation rate and after 3 months you aren't counted as unemployed.

The only jobs that have been created are casual jobs. Manufacturing jobs are vanishing.

Over 1 million lay offs in 2015 and after the Xmas period expect the corporations to slash more to prop up their profit margin to ensure they collect their bonuses.

None of the bad data receives enough attention by the MSN.

ON I reports are heading negative and the dry batik index is at lowest levels since the great recession.

Being an election year in the US will see them keep propping up the system with more in payable debt.

When it all crashes it will be a collapse.

Where you do you read this utter nonsense? If you count children under the age of 10, then yes, 1/3 to 1/2 of the population does not have a job.

Unemployment benefits are typically available for the unemployed for 6 months. During the 2008-2011 period (or thereabouts), the period was increased to 9, 12 and sometimes 18 months. As long as a person continues to register for unemployment (whether or not they collect insurance benefits), they will be counted as being unemployed. It's only the tossers that can't find a job (even if it means collecting garbage) or that are too lazy to work, that are are the ones that are 'hurting'. I frankly don't give a hoot.

The US does not need people to manufacture sprockets. A simpleton can do that, and there's no way any smart person is going to pay top-dollar to someone to make trivial goods. Many of these jobs have been outsourced overseas because the labor-rate is less than that of the US. And so? I expect those remaining in the US to get educated, and look for white-collar jobs, not low-level work.

Edited January 3, 2016 by Gumballl