Thursday, December 17, 2015

Themes of 2015

With the year coming to a close, we've been running an inventory of the events, topics and themes that swayed the market over the course of the year.  To be sure, this list is by no means comprehensive but we felt these were some of the "ingredients" that contributed to what turned out to be a frustrating year for most.

  • Volatility Comes Back
    • 2015 saw surges in volatility that had not been seen since 2011. Particularly the August - September timeframe. Which is no surprise why 2015 has been the most challenging year since 2011.

  • The plunge in crude oil and many other commodities
    • Oil’s drop in 2015 wreaked havoc on energy-related stocks, emerging market economies, the high yield bond market, MLPs, etc.

  • Emerging Markets Sink
    • As referenced above, emerging markets investing was a minefield this year as commodity-producing economies suffered slowdowns.

  • Currencies & US Dollar Strength
    • The dollar displayed continued strength as major economies around the world sought to fight off recession by introducing additional monetary easing policies.
    • China, in a surprise move, devalued the yuan as they fought to stem their slowing economy

  • Flat Market Hides Underlying Volatility
    • While the market is flat for the year, 65% of the S&P 500 has moved at least 10%.  145 stocks are up more than 10% while 178 are down more than 10% (according to S&P’s Howard Silverblatt)

  • Stock Selection / Breadth
    • FANG stocks (Facebook, Amazon, Netflix, Google)
    • The year was all about being in the right names as breadth was incredibly narrow.
    • The 10 largest stocks in the S&P 500 are up an average of 21% YTD.  The other 490 are down an average of -2.5%.  The largest such spread since the bursting of the tech-boom bubble.

  • Trannies Weakness
    • Transports lagged significantly which served as a drag on overall market performance.  The ratio chart below showing Transports : S&P 500 tells the story.

  • Fed and Pullback of QE
    • The FED finally moved on rates yesterday. The quarter-percent move was debated, predicted and picked apart for the entire year.
    • This article from MarketWatch shows how various asset classes performed leading up to, during and after previous rate hike cycles.  History suggests that the S&P has typically slipped a bit once rates begin to rise but then assumes an upward bias as the cycle continues on.

  • Greece Debt Crisis
    • Dominated headlines the first half of the year and ultimately a crisis was avoided with yet another bailout.  However the damage was already done as the Greece stock market is down roughly 70% from its peak and down 25% ytd. 
  • Geopolitics - Russia, Syria, ISIS/Terrorism
    • Terrorism, both here and abroad, reared its ugly head with attacks occurring throughout the year. Meanwhile the civil war in Syria and chaos in the Middle East has resulted in mass migration across all of Europe.

  • Healthcare Shakedown
    • As the political season heated up, the healthcare industry came under scrutiny on a variety of fronts.  Valeant (VRX) plunged almost 74% peak to trough this year as it was the poster child for political outrage.  

Ryan Worch is the Managing Director of Worch Capital LLC. Worch Capital LLC is the general partner of a long/short equity strategy that operates with a directional bias and while emphasizing capital preservation at all times.

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