We began the year with tragedy. On Jan. 7, 2015, two Islamist terrorists attacked the French offices of the satirical weekly newspaper Charlie Hebdo in Paris, killing 11 and injuring another 11. In the largest demonstration since 1944, over 2 million people and 40 world leaders met in Paris to rally for unity.
In another display of strength for Europe, Mario Draghi, president of the European Central Bank delivered a classic compromise in the form of a 1.14 trillion euro ($1.24 trillion) bond-buying program. This move was similar to the United States and other developing nations who have implemented these bold measures in order to jump start their fragile economies and prevent deflation from creeping in. The MSCI EAFE USD index returned a half percent as the market rallied and the euro slipped lower. Contrast that with the 3 percent decline in the month of January for the S&P 500 after the strong returns of previous years.1
February began to show a renewed enthusiasm for equity markets as international markets led the way. All eyes were on Draghi’s bond-buying program as the MSCI EAFE index was up 6.5 percent during February, leading most major indices and reversing a trend of lagging behind U.S. market indices returns of years past.2
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Equity prices in the U.S. pulled back as energy stocks dropped in unison with the price of crude oil. Speculators on both sides debated whether oil prices had bottomed out or would continue to fall. By March though, oil dropped to $60 a barrel. As the year progressed, lower oil prices continued, ushering in a new normal both at the pump and in the shale regions. Lower oil prices sparked another debate. What do lower oil prices mean for the U.S. economy after shale fracking has already transformed it? Economists are still studying the effects, but many believe consumers will see a tailwind to their spending while high cost domestic energy producers could be threatened to adjust quickly.3
In April, Comcast called off its plan to merge with Time Warner Cable. After 14 months of deliberations, regulators made clear that they were not going to approve the $45 billion deal. The Federal Communications Commission and the Justice Department appeared to have been driven by concerns that the combined company would have stifled the emerging online video market. Consumers were concerned service standards may have been stifled.
As Time Warner and Comcast parted ways in April, many of the major indices went in opposite directions as well. While the S&P 500 barely budged upwards by 1 percent, the MSCI EAFE rallied 4.2 percent and the MSCI EM rallied 7.7 percent during April. This divergence of indices was to continue later this year, although the directions were yet to be solidified.4
The United States took Cuba off the state-sponsored terrorism list on May 29 as a gesture to resume full diplomatic relations. The expected ease of economic sanctions was a step toward thawing relations and allowed Cuba access to banking services in the U.S. While the residue of the cold war was being wiped away, low interest rates were not. At the end of May, the ten-year treasury clocked in at a mere 2.12 percent, the exact same rate as the start of the year.5
As the first half of the year came to a close, we had a bit of a divergence in equity markets with international and emerging markets performing well. The MSCI EAFE led the way with a 5.9 percent return, followed closely behind by the Russell 2000 at 4.8 percent and the MSCI EM index chipping in 3.1 percent. The S&P 500 returned a more modest 1.2 percent as markets diverged from previous years. The U.S. Barclays Aggregate Bond index was slightly down with a negative .1 percent return, leaving fixed-income investors out of the rally during the first half of 2015.
Low volatility during the first half of 2015 coincided with a relatively modest gain in the general equity markets, as bulls and bears offered a seemingly friendly coexistance. That coexistance would prove challenging during the second half of 2015, as volatility presented itself once again.6
1,2,4 Morningstar® Direct
3 U.S. Energy Information Administration. www.eia.gov/petroleum/