Home' Trinidad and Tobago Guardian : December 28th 2014 Contents DECEMBER 28 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
STOCKS | SBG9
Global markets uninspired by Dow topping
18,000 for first time; Europe closed for holiday
LONDON---European markets closed early
Wednesday for the Christmas break, largely unin-
spired by another landmark achievement by the
Dow Jones index, which ended the previous ses-
sion above 18,000 for the first time.
KEEPING SCORE: In Europe, Britain's FTSE
ended 0.2 per cent higher at 6,609.93, while the
CAC-40 in France fell 0.4 per cent to 4,295.85.
German markets were closed. Europe's main
markets are not set to re-open until Monday.
Wall Street looked set for a flat session later, with
Dow futures and the broader S&P 500 futures
up 0.1 per cent. The US session is shortened too
ahead of the Christmas break.
ANALYST TAKE: "With much of Europe out
of action already, volumes are thinner than the
spread on Scrooge's Christmas table," said Chris
Beauchamp, market analyst at IG.
DOW RECORD: The main focus in markets
ahead of the Christmas holiday was whether the
Dow could breach the 18,000 mark for the first
time. On Tuesday, it duly did, in another indi-
cation of the optimism that's sweeping US
investors following a run of solid economic data.
Notably, the Commerce Department reported
that the economy grew at a 5.0 per cent annual
rate in July-September. That's the highest tick
in 11 years.
THE DAY IN ASIA: In Asia, trading was
more active as most markets don't celebrate
Christmas. Japan's Nikkei 225 rose 1.2 per cent
to 17,854.23 as the Japanese yen slipped against
the US dollar. South Korea's Kospi rose 0.3 per
cent to 1,946.61. Hong Kong's Hang Seng edged
0.1 per cent higher to 23,349.34. But the Shanghai
Composite Index dropped 2.0 per cent to 2,972.53.
CURRENCIES: Trading was subdued in the
currency markets, with the euro up 0.2 per cent
at US$1.2212 and the dollar down 0.2 per cent
at 120.38 yen.
ENERGY: Oil prices gave up gains made in
the aftermath of the US economic growth data.
Benchmark US crude oil slipped US$1.32 to
US$55.80 in electronic trading on the New York
Mercantile Exchange. Brent crude, the interna-
tional standard, was down US$1.48 at US$60.21
a barrel. Oil prices have been a major focus in
markets over the past few weeks as they have
fallen by about a half since the summer. AP
drift as markets
close for holidays
Can the US hold everyone
else above water? That is
the question investors are
asking as Wall Street
heads into 2015. A strong
U.S. economy helped pro-
pel the stock market
higher in 2014, continuing a bull market
that is on pace to celebrate its sixth birthday
in March. On more than one occasion,
investors dumped stocks following geopo-
litical flare-ups and concerns about the
global economy, only to jump back in when
an economic report or results from a big
company suggested the U.S. economy was
This bull market may be slowing down,
but it still has had a remarkable run. The
Standard & Poor's 500 index has more than
tripled from its March 2009 low.
Wall Street strategists, who typically are
bullish on the U.S. stock market, expect the
advance to continue into 2015.
Here are the major themes investors will
need to watch:
--- SOLID, NOT SPECTACULAR, AGAIN:
2014 has been an above average year for
stocks, but Wall Street forecasters expect
more a more modest year for the market
next year. The S&P 500 index is on track
to return 14 percent in 2014 including div-
idends, a healthy gain but well below the
2013 return of 32 percent. Because the U.S.
economy should continue to improve, stocks
are likely to march higher in 2015, strategists
say. On average, strategists forecast the S&P
500 will be up roughly 6 to 8 percent, with
most of the gains coming from large multi-
national companies that would benefit great-
ly from an improving U.S. economy.
Although there are risks that U.S.-based
companies international sales could slow
because of weakness in Europe and Asia,
strategists believe US growth will make up
for that drag.
While US-based companies do roughly
half their sales outside the country, profits
are still largely driven by the American econ-
The US economy is expected to grow 3.1
per cent in 2015, accelerating from the 2.2
per cent growth it is expected to have this
This is a mature bull market, strategists
say, so stock prices are relatively high and
the possibility for volatility even higher.
Investors are paying roughly US$17.50 for
every dollar of earnings companies in the
S&P 500 generate, the most they've paid
for stocks since 2010. On average, investors
pay something around US$15 dollars for
every US$1 of earnings
These high valuations could make
investors more nervous about holding stocks
if prices continue to climb. The stock market
fell nearly 10 percent in October, its first
major sell-off since 2011.
"Expect more pullbacks or corrections,"
says Liz Ann Sonders, chief market strategist
for Charles Schwab.
7/8--- SLOW RATE HIKES
For several years, the Federal Reserve had
been buying bonds to both keep interest rates
low and boost stock prices. The program,
known as quantitative easing, was designed
to make bonds seem more expensive than
stocks by suppressing the yield on bonds. It
was also designed to make it less expensive
for consumers and businesses to borrow.
That programme ended in October, but it
doesn't mean the nation's central bank hasn't
stopped helping out investors. The Fed has
kept its key interest rate near zero since
December 2008. Strategists believe the time
has come for the Fed to start raising interest
rates because the U.S. economy has improved
enough to withstand higher borrowing costs.
This phenomenon is going to have a huge
impact on where the stock market goes in
"I see the Fed starting to raise interest rates
in June, and it's going to be a gradual
increase," said Russ Koesterich, global chief
market strategist at Blackrock. "Investors are
Generally, strategists see the Federal Reserve
raising its key interest, officially known as
the Fed funds rate, from zero to 1 percent
next year, in gradual increments of 0.25 per-
centage point each.
As interest rates rise, investments such as
bonds will pay higher yields. If bonds are
earning more, stocks will have more difficulty
looking as attractive as they once did. That
could make it more difficult for the market
to go higher.
--- MUCH ADO ABOUT OIL:
The collapse of oil prices this year has
become a huge topic of worry as well as a
comfort for investors.
American consumers love that falling oil
prices have driven the price of gasoline below
US$2.50 a gallon. Wall Street's relationship
with oil is far more complex, however. Oil
revenues are critical for several large
economies, including Russia. Banks loaned
money and energy companies issued high-
yield bonds to investors based on projected
oil revenues. Energy companies are reliant
on high crude prices to make money and to
keep their stock prices high. Shares of energy
companies in the S&P 500 are down 10 per-
cent this year. Many junk bonds are trading
at distressed levels.
There's worry that oil's drop could shake
up the global financial system. Russia's cur-
rency, the ruble, has slumped in recent
months because investors are concerned that
the government could default or that the
country could slip into a recession. In 1998,
Russia defaulted on its debt, in part because
of plunging oil prices.
The big question for next year is whether
the world is simply producing too much oil,
or whether the global economy is not strong
enough to consume it fast enough. Also, if
prices keep falling, will oil producers start
cutting back production, which in turn could
provide some support for oil prices.
"I still believe what's happening to oil is
related to there being too much supply, but
the sell-off is sending ripples through the
market about global economic growth," said
Sonders of Charles Schwab.
Peter Tuchman wears
a "DOW 18,000" hat
on the floor at the
New York Stock
Exchange in New York.
US stocks pushed
further into record
territory on Tuesday
as the Dow Jones
crossed past the
18,000-point mark for
the first time. AP
--- BONDS WILL HAVE A TOUGH YEAR . OR
The biggest prediction of 2014 to fall flat on its face
was that bonds would have a bad year in 2014. They
didn't; in fact, they went in the opposite direction.
Instead of the 10-year US Treasury note going from
2.97 per cent at the beginning of the year up to 3.5
per cent, as many predicted, the benchmark note was
yielding 2.18 per cent as of Dec. 22.
Many strategists readily admit they completely
missed on their bond predictions. Nevertheless, many
investors are doubling down on their bond yield fore-
casts for 2015, with some looking for the 10-year yield
to reach 2.5 per cent to 2.75 per cent next year. They
reason that the U.S. economy is improving and the
Federal Reserve is expected to raise interest rates. AP
Will US bull market continue?
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