Monthly Stock Market Report – December 31, 2014

Stock Market Report 2015 Outlook Positive with Cautions

The U.S. stock market action in December 2014 was nothing to write home about. In fact, it was a small month-to-month loss due to usual low-volume stock trading losses just prior to New Year’s Day. While the 2% loss from December’s final days of volatility may not be too scary, it should raise some red flags going into the new year. A  negative 3-5% correction in the beginning of the year would not be a surprise, especially given the impact of the crash in oil prices on corporate earnings. The first two weeks of stock market action will be determined by earnings reports for the 4th quarter of 2014 and earnings projections for the 1st quarter of 2015. January stock trading will set the tone for investment results for 2015 and go a long way to answer the question “Will the 5-year U.S. stock market rally continue for another year?”

Our 2015 U.S. Stock Market Outlook

We believe that five factors favor the continuation of the rally that began in March 2009:

  1. Most U.S. economic data is now showing and will continue to show better than expected improvements.
  2. Economic results have not been reaching “bubble” stages, hence a recession is not on the horizon.
  3. The “U.S. consumer,” which accounts for 70% of the U.S. economy, is showing strength with more spending and higher confidence going into 2015.
  4. Profits of U.S. companies will improve as the central banks of various countries, especially those in Europe, try to add more stimulus to improve their own economies.
  5. Lower oil prices will help the U.S. consumer, major developing economies such as China, and other energy-dependent nations improve their business profits.

Our Biggest Stock Market Concern for 2015

Interest rates! The U.S. Federal Reserve will likely raise rates sometime in 2015. The bond markets will let us know when that will occur with trading that will anticipate these moves. The U.S. stock market can handle a rise from the current 2.2% 10-year rate to probably a 3% 10-year rate without a serious correction. Any increase above a 3% 10-year rate must come with very strong corporate profit results. If not, then U.S. and other global stock markets will see a significant correction of 10% or more.

Our TSOA retirement model accounts remain unchanged. As a reminder, here is what our TSOA investment method means:

  1. “T” stands for Timing. You need to make smart and timely decisions on what to own and when to own certain investments given changing economic conditions.
  2. “S” stands for Selection. You should select from among the best of the better investment choices, especially mutual funds and ETFs.
  3. “OA” stands for optimal allocation. You must implement the asset allocation that is optimal for you based on your personal risk preferences and risk tolerance. Learn more about your risk preferences and risk tolerance with our proprietary MOAAA tool.

Keep Buying Cruise Line Stocks

In early December we strongly suggested that investors should buy the major cruise lines [Royal Caribbean (RCL), Carnival Cruise Lines (CCL), Norwegian Cruises (NLCH)]. In the two months since that time to year-end, the stock prices of these three cruise lines have risen sharply (CCL up 13%, NCLH up 18.9%, RCL up 22.3%). We believe there is more upside coming and urge you to consider owning these cruise lines stocks in your long-term investment portfolio.

We also urge you to continue to slowly accumulate the stock suggestions in our Fun Stocks Index. The growing strength of U.S. consumer buying power will produce better profits for these companies in the coming years.

Be sure to sign up for a free subscription to alert you of any updates.

We wish you the very best for 2015,

Jim Tso

Note: Jim owns shares of RCL, CCL, NLCH, and all the stocks in the Fun Stocks Index in his personal, IRA, and Roth IRA accounts.

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Jim Tso wants to “give back” and share his 35+ years of successful personal money management experience to help others to achieve their financial goals. Jim created this InvestBetterSpendSmarter blog (IBSS) to provide you with free investing, planning, savings, retirement, and inspirational tips derived from his unique, innovative, and proven approaches to money management. He welcomes and appreciates your feedback.

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