Year-End Performance Brings Good Cheer

The end of the year brought glad tidings to Wall Street. During Christmas week, investors saw some impressive records set with the Dow Jones Industrials closing above 18,000 for a new record and the Standard & Poor’s (S&P) 500 index hitting its 52nd record closing for the year. The economy is showing steady growth with a five percent rise in Gross Domestic Product for the third quarter, and the job market is looking rosier than many had dared to hope. How does all this optimism translate into predictions for the New Year? And what about some key factors that emerged as 2014 drew to a close? Here’s a roundup of some of the factors that analysts believe will shape the year ahead. Analysts may agree on what the key issues are likely to be, but there are many opinions on how these situations might unfold.

Oil Prices

We barely had time to celebrate good news at the gas pump before some analysts were fretting about the troublesome implications of an oil price decline on the U.S. energy sector in general, and on the respective economies of European and emerging nations that still are struggling to recover from the grips of recession. Falling gas prices leave more disposable income for U.S. consumers to spend elsewhere, but plummeting prices-per-barrel (down almost 50 percent from their highs of mid-year) will mean less revenue for many leading domestic oil producers and put pressure on those who are heavily leveraged. If prices per barrel continue to slide, it could hobble investment in exploration and in companies that provide services to this sector. On the other hand, some analysts believe the negative impact on the energy sector will be more than offset by increased consumer spending power and the benefits of cheaper energy for corporate America.

The Labor Market

The decreasing rate of unemployment gives cause for celebration, but some economists suggest we look beyond the recent numbers to consider that the statistics don’t take into consideration the long-term unemployed who are no longer part of the tally and those who are under-employed –working part-time but hoping to return to full-time jobs. For the labor market to return to pre-recession health, it will require people who have been unemployed for six months or longer to be able to procure jobs.

Globalization

The United States has had the strongest rebound of any nation. However, the U.S. economy might not be sheltered from the ill effects that recession and geopolitical tensions have created throughout Europe and Asia. Europe remains mired in recession and Japan has seen its economy retract over the past two quarters. The powerhouse Chinese economy has slowed to below eight percent annually – from its previous double-digits – and the Russian economy is mired in crisis with its central bank hiking interest rates recently to a dizzying 17 percent in an attempt (which subsequently failed) to shore up the ruble. Although we will reap the benefits of lower commodity prices and cheaper foreign goods, we might experience a downside, too. How much sustained growth can we expect without some economic improvement throughout the rest of the world? The markets for U.S. products and services could shrink unless our key trading partners see some economic rebound.

The outlook for the immediate future looks rosy, but the market will always have its optimists and pessimists. Predictions are always dicey and none more so than stock market forecasts. Let’s celebrate the significant milestones achieved during 2014, and hope for similar achievements to celebrate in the New Year.

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