The Year Is Done! - Vodia Capital

The year is done, and it is a challenge to find the bright spots. There are a few – some tech giants did well in addition to specialized pharma. With pharma in particular, cheap loans sponsored by the Fed’s policy, M&A activity drove most of the gains to be seen in the market.

The overall numbers, however were between disappointing and abysmal. The major U.S. indices, the Dow and the S&P 500, both posted losses that were canceled out by the dividends. Investment grade bonds were pretty much flat or down, and junk-rated debt was hammered in the last weeks of the year.

Most important, however, was energy. With oil taking a 40% hit on the year after a terrible December of 2014, it sucked the life out of everything from drillers to industrials. While this trend is temporal – oil demand will increase and supply will drop – the volatility has shaken the financial markets to their core. Geopolitics have played a major hand in this dynamic – from OPEC’s admitted failures to Iran’s nuclear program – oil is the constant theme.

There is one major bright spot in 2015: our energy-based economy will eventually shift to more sustainable sources, and with 195 countries signing the Paris Climate Accord that trend might begin to accelerate at a meaningful pace. We are unlikely to avoid serious environmental change, but we could avoid far greater consequences. These trends, combined with the Fed’s movement into a new rate regime, promise for an extremely interesting, and hopefully clarifying, 2016.

We will explore all of these issues and more in our quarterly Market Update in two weeks.

All the best for a Happy New Year!

David Matias