By Deborah DeMatteo
Managing Director & Chief Investment Officer
As another year comes to a close, it gives us the opportunity to pause and reflect on the year now behind us. For many it is the renewing of our New Year’s resolutions and an evaluation of our personal goals and expectations. For the markets, we close the books and start all over again, looking to glean as much from the year behind as lessons to take with us for the New Year to come. In 2014, like most years, brought with it many surprises and big headline stories. I will close the year with a look back at some of 2014’s top stories.
We ushered in the New Year in 2014 with the backdrop of a highly anticipated and historic event of the first female presiding over the Federal Reserve, Janet Yellen. For more than a century, this male dominated institution is now lead by a 68 year old Brooklyn native female. With what will arguably be one of the most challenging policy transitions in history, to move from a period of unprecedented aggressive monetary stimulus policies to a tightening mode, every word and every move of the Fed will be highly scrutinized over the next several years. With all expectations for higher interest rates in 2014, one of the biggest surprises was the significant decline in rates in the face of the move to reducing stimulus. As the Chairperson of the Fed, one of Ms.Yellen’s goals is to bring a higher degree of transparency to the Federal Reserve’s policy making procedure. I am not sure that knowing more about what they do will provide any greater sense of confidence to the markets as stimulus is removed. Hopefully Janet Yellen will have an extremely successful term and lead the US economy back to a more normalized rate structure and a healthy economic recovery.
More recently we watched oil prices plunge as we closed out the last quarter. Just as investors were wrong about interest rates for 2014, there was no call by the analyst community for lower oil prices. From the mid-year highs of over $115 per barrel, we witnessed over a 50% decline, most of which came late in the year. This has created a significant drop in gas prices with the national average down near $2.30 per gallon. It is estimated that Americans are pocketing $15.4 billion a month more in savings, than when gas was at its 2014 high of $3.70 per gallon. Although purely a positive for consumers and industrial businesses that are large consumers of energy, it calls into question the energy revolution and the economic boom in regions such as North Dakota and Texas. Furthermore, it also increases the likelihood of political turmoil in energy producing regions of the world such as Russia, Venezuela, and Iran. With gas prices at 5 year lows coming into the New Year it will likely be an area of much discussion for 2015.
Just as surprising was the improvement in the U.S. economy as the rest of the world continued to slow. After the deep freeze of the first quarter of 2014 and the negative first quarter GDP we just posted the best six months since 2003. During the same period, Japan slipped back into recession, and the 18 countries that make up the Eurozone are barely growing. Developing nations aren’t faring much better. China’s growth has dropped to a five year low of 7.3% GDP growth in the third quarter. The decline in oil prices and economic sanctions are crippling the Russian economy. Two things at work to help the U.S. consumer, in addition to lower oil prices, has been an improvement in the job market and minimum wage hikes. Employers added more than 3 million jobs during the year, the most since 1999, bringing the unemployment rate below 6%. With inequality rising and Federal minimum hourly wages still at $7.25 since 2009, 29 states and Washington D.C. have agreed to raise the state minimum wage rate beginning in 2015.Any continuation of an improving consumer will be a catalyst for 2015.
A theme that was unfortunately a big part of 2014 was cyber security. The breaches were not only significant but very far reaching in impact. This will likely continue to be a major theme and point of discussion for the New Year. Target became the subject of the theft of 40 million credit and debit cards and 70 million personal records. Unfortunately, that was not the end of it as Home Depot was hacked and 56 million cards and 53 million email addresses were stolen. JP Morgan also reported that hackers stole information covering 76 million households and 7 million small businesses. We ended the New Year with a new type of cyberattack with the breach at Sony leading to the canceled release of the movie “The Interview.” Although not your typical financial headline, the impact to the entertainment industry has yet to be seen. Will this affect the way we bank, shop, and communicate in the future? Will it impact the entertainment industry and the way they distribute content in the future? As consumers and investors think about what changes they will embark on in the future, the protection of our personal data will be on the minds of everyone involved in commerce of any type.
dustries throughout the year. Some additional notable stories of 2014 would include the following. Amid a strong recovery in the auto market, in the U.S. alone, automakers recalled more than 60 million cars and trucks, far surpassing the previous record of 30.8 million set in 2004. General Motors was fined $35 million by safety regulators for their failure to replace faulty switches. Let’s not forget the tragedies in the airline industry. Flight 370 bound for Beijing from Malaysia with 239 passengers vanished from the sky on March 8th and remains a mystery today. The annexation of Crimea by Russia lead to sanctions by the international community. In a surprise announcement President Obama announces his intent for the U.S. to restore diplomatic relations with Cuba after 50 years, sparking optimism on the potential future of that market. The largest IPO in history came in 2014 when Alibaba, a Chinese internet shopping site went public and raised a record 25 billion. This made its founder Jack Ma an overnight billionaire with an estimated net worth of 26 billion and ranking him as the 7th richest tech titan. Fears of Ebola gripped the world in October as we watched health care workers robed in hazmat suits accept patients into the United States. Republicans gained control of Congress giving this administration one more hurdle to overcome. And with all this to digest the markets closed higher for the 6th consecutive year.
Once again we begin the year with predictions and forecast for what the year ahead will bring. If history is any indication of the future it is pretty clear that many of the major moves within the market are rarely a highly expected event. One year is a relatively short period of time for most investors. Understanding that headlines are just that, headlines, and will likely not be an economic event that should change your investment strategy. I am sure that 2015 will give us our share of headlines and news; we will remain focused on the health and sustainability of the U.S. and world economies.
Happy New Year!