So what is the lesson of last year?
Janus was the god of new beginnings, of transitions and portals. He had two faces: one looking forward, and one looking back. We've noted some of the surprises of 2015. What does 2016 have in store?
In many ways, 2016 will look like 2015. Oil and other commodity prices should remain weak, held down by global oversupply. But prices can't stay down here forever. We're not replacing the oil and iron ore we're taking out of the ground - prices are too low to justify the capital investment. So commodity prices will gradually rise. But in the meantime, consumer spending should remain strong, supported by low energy prices.
Healthy consumer spending will help retailers, but it won't help the capital sector. This bifurcation will create winners and losers: consumer-oriented tech companies should do fine, while makers of heavy equipment continue to struggle. These companies are suffering under a double burden: weak commodity prices and a strong dollar. The Fed's widely anticipated rate increase has lifted the trade-weighted dollar by 20% since mid-2014. That's been a drag on US exports and the earnings of globally-oriented US firms.
Source: Dept of Commerce, Bloomberg
But the strong dollar has lifted the prospects for Europe and Japan. So while those markets have struggled in dollar terms, they've been quite healthy in their own native currencies. Many people are surprised to hear that the strongest market in the world last year was Russia - at least in Rubles.
I also believe that global terrorism, cyber-crime, and geopolitical turmoil will continue to roil the markets. There are over 4 million refugees from the Syrian Civil War - most of which are in Turkey, Lebanon, and Jordan. And over 6 million Syrians are displaced within their country. This is, by far, the most significant humanitarian crisis in recent memory. Mass migrations of this sort can affect economies and markets for years.
In many ways, 2015 was like 2011 - a flat year for the market that followed a couple of strong years. 2013 resumed the upward trend. But markets don't work like clockwork. There's always something new that changes the landscape. Nevertheless, we believe that the global economy remains solid - for all its challenges. And a growing global economy should continue to lift markets around the world.
Physicist Niels Bohr once quipped, "It's exceedingly difficult to make predictions, especially when it's about the future." But since asset prices reflect the present value of future cash flows, they depend on the future state of the economy, financial innovations, and investor behavior. Predictions about the future are exactly what markets are making. That's what makes watching them so fun.