I like to listen the sports radio show The Herd with Colin Cowherd. Colin makes a lot of observations and bold predictions on his show. He also does a segment called Where Colin was Right and Where Colin was Wrong in which he reviews how his predictions panned out.

I am going to do the same, regarding my take on the markets for 2015.

Where I was Right: While the global markets had very flat returns, the bull market continued. An investor should only take a defensive portfolio position if he/she is confident in the imminent oncoming bear market. Otherwise investors should remain fully equitized within the framework of their asset allocation. The dangers of missing out on potential positive returns are great than being hit with potential negative returns. Where I was Wrong: I fell into the Fed “predicting game” trap. I thought the Fed would raise rates much sooner than they did. I thought we would have at least one rate hike by the end of summer, and the first rate hike did not come until December. Where I was Right: Large-Cap Outperformance: From a size perspective large-cap, and more specifically large-cap growth outperformed the other size categories 2016. This was the overarching theme of my managed portfolios and it paid off. Large-cap stocks outperformed mid, and small caps. I had portfolios overweight to large and mega caps, and overweight towards growth which outperformed value in 2016. Where I was Wrong: Financials were essentially flat relative the market in 2015. I expected the financial sector to benefit from rising interest rates and have outperformance which led me to position portfolios with a slight overweight relative to benchmark. The rising rates did not come until December and the outperformance never came. Where I was Right: On August 21st I made a post advising investors not to panic sell their stock positions. I said that the market appeared to be going through a classic correction and that the right course of action was to hold. It turned out to be a classic correction, which was over with almost as quickly as it started. Where I was Right: Greece was overblown. In the early part of 2015 there was great worry that the global economy and markets were vulnerable due to problems in Greece. The impact Greece has on the global economy/markets was always overblown, and I said just that.

S&P 500: 1.38% 2015 Return

MSCI EAFE: -0.39% 2015 Return

MSCI EM: -14.6% 2015 Return

US Aggregate Bond: 0.55% 2015 Return

Major Themes for 2015:

1. The Fed Saga Continued – The primary and ever present story in 2015 was the Fed and what/when/how/if they would move on interest rates. Whether watching CNBC, Bloomberg TV, Fox Business, or listening to any financial radio program, they were all talking about the Fed. Frankly it was overblown and I do not wish to write more about it, even though I inevitably will. Similar the strengthening/weakening of currency which I talk about in the next bullet point, the impact of rate moves is overblown.  Historically bull markets have often continued after/during rate hike environments. Rate hikes are not automatically a headwind for stocks, and rate hikes will not stop the bull market alone. Stocks were flat among developed markets in 2015, but the Fed saga was only one of many factors that combined to form those returns. I expect the news coverage in 2016 to continue to revolve around and attribute too much of stock performance to the impact of the Fed.

2. Strong US Dollar Weighed on US Stocks – The strength of the dollar rose throughout 2015. Too many folks exaggerate the impact of strengthening or weakening currencies on the economy and the markets. If we look at recent history (in market terms) the dollar strengthened in the back half of the 1990s and US stocks had historically high performance; US stocks also had high performance 2003-2007 when the dollar weakened. Similar examples can be easily found looking at other countries. When looking at the big US companies and how the impact of the strong dollar on revenues, keep in mind that many firms have foreign-sourced input costs such as: raw materials, labor, and transportation which is cheaper when there is a strong dollar. These savings in effect cancel out the strong dollar impact on overseas revenues. It is true that a US investor that held US stocks did not get the same return as a European investor that held US stocks. There is always some currency risk out there, which is why investors should always diversify globally in their holdings. Blaming the strengthening dollar for US stocks or global stocks lackluster 2015 returns is a stretch.

3. Energy Sector Drastically Underperformed – A year that saw the S&P 500 have flat returns, the energy sector got walloped with -21.4% returns. Oil prices dropped to ultra-low levels, and at this time there is little indication that production or supply relative demand will decrease in the near future. Throughout the year bargain hunters attempted to call bottoms to energy stocks, and were consistently wrong. Inflows into natural resource ETFs among retail investors show that many falsely believe that what goes down must also go back up. The time to buy back into energy stocks will be when the fundamentals change or when sentiment becomes overly negative and out of balance with reality. Investors should not be buying heavily into a stock or category of stocks simply because it has dropped drastically in price, without considering “why” it has performed so poorly. Unfortunately based on fund inflows/outflows investors did just that.

4. China’s Growth Slowed  – A slow down in Chinese economic growth was one of the top stories in 2015. It weighed on the markets, and it weighed on economic growth numbers within the emerging markets category as a whole. I expect this trend of slower Chinese economic growth to continue in 2016. This should not be a surprise to anyone. China is now the world’s largest or second largest economy depending on your method of measurement. It is unrealistic to expect an economy so big to continue to grow in the double digits year after year. More importantly I do not think that there will be a significant difference in the markets if China grows at 6% vs. 9% in 2016. I see both scenarios as bullish for the markets in 2016. A side note, it is exciting to think that slower growth in China is evidence of its economy transitioning from “emerging into developed” territory. This will create an opening for another great economic growth story to be the “next China.”

5. Greek Fears, the Grexit – Greece was a major headline in the first half of 2015. Would Greece exit (Grexit) the Eurozone? Would they accept austerity measures? Would the Greek government default on its debt obligations? Would the Greek government ever meet any deadline that had been set? The list goes on and on. Much of this seemed like deja vu, ah la 2011. All of the excitement added to jitters within the markets. I said all along that the saga playing out in Greece was being overblown. Greece with GDP of around $200 billion, roughly the size of Detroit (which did default in a year US stocks rose 32.4%), is not big or significant enough to trigger a global recession or bear market. As things continued to play out it became more and more clear that Greek troubles would not be contagion with regards to the greater Eurozone. Example: In April at the time of the chaos Greece owed Spain €25 billion, which amounts to only 2% of Spain’s GDP. That was the highest amount owed to any of the Eurozone countries,far from qualifying as contagion. Eventual Greece having no negotiating power, accepted the austerity terms.

Wow, what a day in the market Wednesday 12/16/15 has been. As I am writing this global markets are up ~1.5% on the day. This coming on the heels of a dismal week ending on December 11th that saw US stocks return -3.74% and developed foreign markets return -2.39%.