Q4 2015 Market Review
The S&P 500® Index barely eked out a gain in 2015 with a positive 1.38% return for the year (including dividends) but, despite the flat return, many other equity indices ended the year with a loss. The Russell 2000® Index declined 4.41% and the Russell 1000® Value benchmark fell 3.83%. With the strength in the U.S. dollar versus most currencies, emerging markets continued to underperform developed markets with the MSCI Emerging Markets Index declining 14.92% versus the MSCI World Index which was down 0.87%. Emerging market stocks were hurt not only by weak currencies, but also by low energy prices and the devaluation of the Chinese yuan in August. Generally speaking, large-capitalization equities outperformed small, domestic equities outperformed overseas (particularly emerging markets), and growth stocks outperformed value by a fairly wide margin (the Russell 1000® Growth Index appreciated 5.67% versus the 3.83% decline of the Russell 1000 Value Index).
The flat return of the S&P 500 Index for the year hid the tremendous dispersion among stocks and industries. Much has been written about the narrowness of the stock market with the top 10 mega-cap stocks appreciating 17% and the other 490 stocks declining 5% (see accompanying chart). However, the market has continued to reward companies whose businesses are growing and punish those that are not. Stock picking has really mattered over the last 18 months as index returns have moderated and credit spreads have started to climb. Mindless risk-on risk-off trading strategies that were so popular early on in this recovery have led to dismal returns as trend followers have been whipsawed. As this economic expansion runs into its seventh year, we would expect stock selection to continue to be very important. We are no longer in a strong rising tide that lifts all boats type of environment.
Read Kayne Anderson Rudnick’s full commentary.