January Market Update
For 2014, the S&P 500 was the strongest performer of the major international indices with Japan’s Nikkei the second strongest, the remaining indices were relatively flat to slightly negative. From this we can see those areas with the most aggressively loose monetary policy had the strongest performing equity markets, something to keep in mind as policies diverge in 2015.
The New Year has been a volatile one in the markets to say the least. The average trading range for the S&P 500 in 2014 was 16.5 points. As of Friday’s close, the average trading range for 2015 has been 30.3, which is nearly double that of 2014. The Chicago Board Volatility Index averaged 14.2 in 2014, but has averaged 33.3 in 2015, (a higher number means greater volatility.) With all that movement, the index is still below the year’s open as of the close on Friday, January 23rd.
As we move into 2015, index performance once again is consistent with monetary policy current realities and future expectations. In the U.S. expectations are for tightening sometime this year, although with the recent weak economic data the market’s expectations around that date is moving further out. Last week Europe launched a whopper of a quantitative easing program and Japan is treading water, having already launched mind-boggling levels of monetary stimulus last year.
Fears of global slowing and divergent monetary policies have also resulted in the yield curve flattening considerably since the start of 2014. The spread between the 10- and 2-year Treasury has dropped from 261 basis points at the start of 2014, to 129 basis points as of yesterday’s close, a more than 50% decline. The spread between the 30- and 10- year Treasury has fallen from 92 basis points at the start of 2014 to 57 yesterday a nearly 40% decline. The yield on the 30-year is hitting all time lows and is now where the yield on the 10-year was back in November.
For 2014, the S&P 500 was the strongest performer of the major international indices with Japan’s Nikkei the second strongest, the remaining indices were relatively flat to slightly negative. From this we can see those areas with the most aggressively loose monetary policy had the strongest performing equity markets, something to keep in mind as policies diverge in 2015.
