So Long, Farewell: Markets Hope to Shake Off 2015
Wall Street waved goodbye to a rocky year on Thursday as traders closed out 2015 on the broader averages not far from where they started.
There were a wide range of drivers for the market’s action this year from diverging global central-bank policy, a continued plunge in the energy sector and speculation over the last 12 months about when the Federal Reserve would hike interest rates for the first time in almost a decade.
Here’s a look at where investors put their focus in 2015.
Broader U.S. Equity Markets Wore Red as Energy Sank
Wall Street’s broader averages failed to hold onto yearly gains as they tumbled into negative territory in the final trading session of the year on Thursday. The Dow ended 2015 down 2.23%, while the S&P 500 slipped 0.7%.
Wal-Mart (WMT) was the Dow’s biggest decliner for the year, plunging 28%. The drop was due to a range of factors including increased competition from e-commerce rivals, its decision to raise workers’ wages and the company’s expectations for profits to drop between 6% and 12% in fiscal 2017.
Caterpillar (CAT), American Express (AXP), Chevron (CVX) and United Technologies (UTX) rounded out the bottom five stocks on the blue-chip average for the year with steep losses ranging from 28% to 16%.
The S&P 500 energy and materials sectors were pummeled this year, posting the worst performance of the 10 major sectors. The top five S&P 500 decliners included Peabody Energy (BTU) – down a whopping 93% – Chesapeake Energy (CHK), Cliffs Natural Resources (CLF), Consol Energy (CNX) and Denbury Resources (DNR).
Energy stocks came under heavy selling pressure in 2015 amid an ongoing rout in oil prices that was sparked by a glut of global supply and tepid demand. Over the two-year period, oil prices tumbled 63%, the first back-to-back down years since 1998.
It wasn’t all doom and gloom. There was a bright spot in the equity markets that came from the tech-heavy Nasdaq Composite index thanks to some unexpected leaders in the space including Netflix (NFLX), which saw a blockbuster year of 139% gains. The Internet video streaming giant made big waves this year with its continuation of original programming including hit shows like “House of Cards,” “Orange is the New Black” and “Bloodline.”
Other winners in the tech space included Alphabet (GOOGL), Google’s parent company, Facebook (FB) and FirstSolar (FSLR).
Oil Pounded by Global Glut Concerns
Crude oil prices worldwide continued their declines in 2015, sinking further into negative territory. West Texas Intermediate crude, the U.S. benchmark, plunged 32% for the year as the market was plagued by continued concerns about a growing surplus in supplies.
The pressure started midway through 2014 when the market began to become oversaturated thanks to the swift growth of the U.S. shale industry.
Meanwhile, the Organization for Petroleum Exporting Countries continued to put its own supply on the global market at the same rate it had been in the years prior, opting this year not to cut its own production (and its own market-share) in hopes the excess would squeeze out competition from shale producers.
So far, that strategy hasn’t worked, and prices have plunged as the two producers continue to play chicken.
In fact, many Wall Street analysts predict the supply glut will persist well through 2016, waiting to re-balance until potentially midway through the year when prices could bottom out in the $30 a barrel range.
The action hit major oil and gas companies especially hard this year, and resulted in some deal making in the sector. For example, the third-biggest announced deal of the year came when Royal Dutch Shell said it would pay $81.5 billion for UK-based BG Group. The transaction, if approved by regulators, would result in about $3.5 billion in savings during this period of multi-year low oil prices.
ExxonMobil (XOM), the world’s biggest publicly-traded energy company, saw a 15% drop in 2015, while Chevron (CVX) shares plunged 19% and Royal Dutch Shell (RDS.A) tumbled 31%.
Fed Speculation Dominated Market Focus
Janet Yellen and other members of the Fed’s policy-setting board were the names on everyone’s lips this year.
Speculation ran wild over the course of the last 12 months as traders and Wall Street economists tried to forecast when the U.S. central bank would finally decide to hike short-term interest rates from historic lows set seven years ago during the Great Recession.
The favored call on Wall Street was for a September rate hike during that month’s FOMC meeting. However, after a summer of tumult in global markets, the Fed opted to hold off any hike until it saw more stability. The move shocked some investors, sending global markets substantially lower after the decision.
But the rate hike was delivered just in time for Christmas. At its December meeting, the Fed raised rates, as expected, by a quarter percentage point from a near-zero range. Central bankers said their dual mandate of price stability and full employment had nearly been met, explaining their rationale behind the late-year move higher. To that point, over the course of 2015, the labor market continued to improve – the most recent data from the Labor Department in November showed the U.S. economy added 211,000 jobs, exceeding the 200,000 expectation, while unemployment remained at 5%. Core inflation also moved closer to the Fed’s 2% target.
Global Turmoil Sent Markets into Summer Spiral
The biggest bump in the 2015 road for the markets came during the summer in a one-two punch. First, Greece again made headlines when it flirted with default in June. The discussions between the nation and its international creditors dragged on through the month before, with the parties finally reaching an agreement on July 13 in the wee hours of the morning.
The second hit came in August when China shocked investors around the world by devaluing its currency, the yuan. The move sent shockwaves through global markets as traders and investors alike worried about the true state of the Chinese economy -- the second biggest in the world.
On August 24, the Dow saw its biggest intraday point drop in history as it plunged 1089 points at the opening bell. All three major averages on Wall Street entered correction territory that day, though they ended well off session lows, but still firmly in negative territory.
In the third quarter of 2015, China’s economic growth decelerated to a pace of 6.9%, and the country’s government said it forecasts more slowing on the horizon and a 6.5% rate in 2016, according to a report from the Wall Street Journal.