Stock and bond markets in major economies closed 2015 with a mixed performance, while oil prices and emerging markets cemented big losses during a year that provided few safe places for investors.
While equity markets in Japan and Western Europe gained strongly amid ongoing ultra-easy monetary policy, concerns about global growth and a robust U.S. dollar crushed petroleum prices and took down emerging markets, copper and other metals.
Fixed-income posted a middling performance, as riskier high-yield securities fell, largely due to exposure to weakened energy credits. Short-dated U.S. Treasury yields rose.
The MSCI All-World Index was down 0.7 percent, and closed the year with a loss of 4.2 percent.
For Wall Street’s most widely followed average, the Standard & Poor’s 500 Index, it was down to the last day of trading to determine whether the year would end negative or not. The benchmark index lost nearly 1 percent for the day, giving its price a 0.7 percent loss for 2015. Including dividends, it posted a positive total return for a seventh straight year.
The market’s ups and downs this year were triggered by worries about oil, global growth and the Federal Reserve. The uncertainty surrounding the U.S. central bank’s plans dominated the last several months of trading, and some were glad to see it finally begin raising rates.
“I think that now that the Fed finally did something it will calm the intraday jitters a bit at least for the first six months, and hopefully see investors more committed to positions rather than nervous to hold anything,” said J.J. Kinahan, chief strategist at TD Ameritrade.
The Dow Jones industrial average fell 1 percent to 17,425.03, the S&P 500 lost 0.94 percent to 2,043.92 and the Nasdaq Composite fell 1.15 percent to 5,007.41.
Brent crude gained 3.1 percent to $37.60 on Thursday, after a 3.5 percent drop in the previous session. For the year, Brent slid 34 percent after shedding 48 percent the previous year, and a global supply glut shows no sign of abating. U.S. crude lost 30 percent in 2015, after falling 47 percent in 2014. [O/R]
Some analysts like Goldman Sachs say prices as low as $20 per barrel might be necessary to push enough production out of business and allow the market to rebalance.
Europe’s Eurostoxx 50 index ended the year with gains of 3.5 percent, after losing a bit of ground Thursday.
In Asia, Tokyo’s Nikkei index, which was closed on Thursday, finished the year up around 9 percent. Other Asian markets have been hit by worries about China, the world’s second largest economy, and by oil prices near 11-year lows.
MSCI’s broadest index of Asia-Pacific shares outside Japan was up slightly on Thursday but shed nearly 12 percent this year. Broader emerging market stocks lost 17 percent in 2015.
The outperformance in European and Japanese equities has a lot to do with a strengthening dollar, which has weakened their currencies over the last few years and made their exports more competitive.
The euro was down 0.6 percent on Thursday, and fell 10 percent against the dollar in 2015. Against a basket of major currencies in 2016, the greenback gained 9 percent, with a rebounding jobs market convincing the Federal Reserve to ‘lift off’ on interest rates earlier this month.
“The Fed could come back with a second hike in March, which is not fully priced in, and the dollar should draw fresh support from that,” said Richard Franulovich, senior currency strategist at Westpac in New York.
Currency strategists predict the dollar will add another 4 percent next year.
The dollar was particularly strong in 2015 against commodity currencies: It hit a more than one-year high against Russia’s rouble on Thursday, and its highest in at least 13 years against the Norwegian crown the previous day.
In debt markets, the U.S. 10-year Treasury yield was at 2.275 percent; it rose modestly in 2015 from 2.17 percent at the beginning of the year.
Much of the year’s rise in yields was in short-dated securities on expectations of higher rates from the U.S. Federal Reserve. The two-year yield rose to 1.05 percent, compared with 0.68 percent at the beginning of the year.
German bonds ended their most volatile year since 2011 with yields higher than they were at the end of 2014, showing the limitations of ultra-easy monetary policy with global disinflationary forces at work.
Ten-year yields closed at 0.63 percent on Wednesday, up 9 bps on the year and far from record lows of 0.05 percent touched in mid-April.
High yield debt was the worst performer among fixed income in 2015. The Bank of America-Merrill Lynch U.S. High Yield index fell more than 4.6 percent for the year; its U.S. Treasury index gained about 0.65 percent.
Metals were broadly weaker in 2015. Copper futures lost 25 percent on the year, while spot gold fell 10.5 percent.