Divergent Paths: Large U.S. Stocks Stand Out as Other Asset Classes Struggle
Tuesday, February 17, 2015
- Large U.S. stocks finished the final quarter of 2014 on a strong note, as the S&P 500 Index gained 4.9% including dividends to bring the total year return to 13.7%. Small domestic stocks found their footing in the 4th quarter as well, as the Russell 2000 Index surged 9.7% to get the index back into positive territory for the year at 4.9%.
- Unfortunately, large cap stocks were the only asset class that really worked this year for investors, as any diversification away from U.S. large cap stocks in 2014 was a drag on portfolio returns. For the first time since the late 1990s, large cap U.S. stocks were the best performing core investor asset class.
- The U.S. economy has grown more than 4% on average the past two quarters. 2014 saw the strongest year of jobs gains since 1999, and the swift decline in gas prices should prove to be a wonderful stimulus to consumer spending, which makes up 2/3 of the U.S. economy.
- Things went from bad to worse for international equities, as the 3.6% fourth quarter decline for U.S. investors dropped the total annualized return to a 4.9% loss. Emerging markets were only slightly less painful, falling 4.9% for the quarter and 4.6% for the year. Slowing global growth, geo political tensions and a stronger dollar all contributed to the struggles international equities presented during the year.
- The drop in long-term yields certainly provided an upside surprise to core bond investments, as the Aggregate Bond Index gained 6.0% for the year. The catalyst for the drop in rates has been the sharp decline in other sovereign bonds yields.
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