2014 has come and gone. The S&P 500 returned around 11.8% (not including dividends), which largely surprised most, especially after 2013 where the market returned >30%. My post in June of 2014 highlighted the possibility of a large pullback in Q3, followed by a strong rally into the end of the year in Q4. Well, I was generally correct, although providing specific index levels would prove how right I could have been. After my post, Q3 was largely flat (but finished up ~2.5%), and at the very end of Q3/beginning of Q4 we finally got the pullback (~7.5% top to bottom), but it wasn’t as pronounced as predicted (my prediction of ~15%).
If you look at the chart from that pullback, it is very “V-shaped”, meaning short-lived with a quick recovery in store. This “V-shaped” pullback has been a theme of this bull market, but particularly the last two years or so. Below is a weekly chart of 2014 highlighting all of the instances of these quick dips (click on it to view a cleaner picture). This is a weekly chart of the S&P500 in 2014. If you notice all but one of the five pullbacks have happened over a four-week period. The other one recovered its losses in 5 weeks.
It’s generally healthier to see a prolonged bottom (more people sell the due to fear, which historically sets up for a “healthier” continuation/upswing). With the lack of prolonged bottoms, this could mean more volatility and possibly larger pullbacks in 2015. Just a thought.
All of this said, what are some opportunities in and outside of the US (S&P 500) that I’m looking to capitalize on? Here is a link to a Google Spreadsheet where I conducted a study of different ETFs heading into year-end.
Given the study I’ve conducted, along with reading other trusted market pundits (NOT anyone who’s on CNBC), I think it’s safe to say that while 2015 presents its fair share of risk, there are plenty of opportunities to profit. Below are some of the ETF’s I’ll either be watching closely or have already invested in:
– EEM (Emerging Markets)
– TLT (20+ yr Treasury Bond)
– DES (US Small Cap)
– PSCF (US Small Cap Financials)
– PMR (Retail Powershares)
– CORN (Corn ETF, Commodity)
– JJG (Grains ETF, Commodity)
– EWGS (German Small Cap)
– RSX (Russia = high risk, high reward)
– BNO (Brent oil = high risk, high reward)
– GRK (Greece = high risk, high reward)
Other Buy Lists worth watching:
– https://www.motifinvesting.com/motifs/william-blairs-picks-for-2015-w1Ktlu43#/overview (full list here http://www.streetinsider.com/Analyst+Comments/William+Blairs+Top+Stock+Recommendations+for+2015/10077925.html)
Go to the Google spreadsheet to view the nine ETFs/sectors I’m wary of in 2015.
As for a year end price target for the S&P 500. I honestly haven’t had time to finish my analysis, but the risk/reward for the US is definitely skewed towards the downside, which is why many of my buys are outside of the US. >90% of the time, the monthly return of January is indicative of the return for the year (positive January, positve year, and vice versa). Last year January was negative, but we saw a ~12% return. Generally speaking, I think this could be a great year for stock pickers, much like last year. Although this year I fear a larger, more prolonged pullback. Not because of a recession, but due to a highly valued US market and opportunities elsewhere.