Fourth Quarter 2015

Quarterly market review, outlook and portfolio positioning

By Peter Di Teresa and Shannon Zimmerman, Portfolio Managers, Morningstar Associates, LLC

Stocks rebounded in 2015’s fourth quarter, but provided little reward for the year as a whole. The S&P 500 Index recovered from the third-quarter correction spawned by fears that China’s slowdown would significantly dampen global growth. But despite the S&P 500’s 7.04% fourth-quarter gain, investors were still left with a paltry 1.38% return for 2015. Small-cap stocks moved in a similar fashion, but the Russell 2000 Index’s 3.59% fourth-quarter rebound wasn’t enough to offset its third-quarter losses; the small-cap Index thus finished with a -4.41% return for 2015.

Foreign developed markets struggled as well. Despite a 4.71% fourth quarter rally, the MSCI EAFE Index of non-U.S. developed market stocks slipped -0.81% over the year in U.S. dollar terms. Japanese stocks finished the year strongly with the MSCI Japan Index posting a 9.57% 12-month gain, fueled in part by aggressive monetary easing by the Bank of Japan. But Europe proved to be a less attractive destination. The European Central Bank’s stimulus efforts kindled only modest stock-market gains in local currency terms—and those were erased for U.S. investors by the euro’s depreciation against the dollar. Global growth remained muted overall, prompting the International Monetary Fund to ratchet down its 2015 GDP growth forecast in advanced economies to a meager 2.0%.

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