Earlier this year I published my annual investment outlook. Doing so provides me with a great opportunity to look at the “big picture” and major themes we should be following in the markets in 2015 and beyond.
The overall picture seems very bright indeed. The U.S. economy has continued to improve, if not as quickly as we all would want. GDP has remained in the 2–2.5% range with some recent signs of quickening growth. Inflation has dipped below 1%, largely thanks to the tanking of oil prices. The unemployment rate, 7.9% in 2012 and 6.7% in 2013, dropped below 6% in 2014. The economy is doing pretty well in the aggregate.
Stocks were up solidly again in 2014, if not by as much as in 2013, continuing a mostly uninterrupted upward run since March of 2009. The Dow ended the year up 7.52% while the Nasdaq and the S&P 500 rose 13.40% and 11.39% (13.7% if dividends are included), respectively, for the year. The S&P is now up an average of 20.7% a year for the last three years including dividends, its best three-year return since the late 1990s.
Meanwhile, the bond market performed well too. Whether we’re looking at bonds in the aggregate (AGG was up 6% on the year) or at various component parts (LQD, representing corporate bonds, produced an 8.2% return, while EDV, a decent proxy for long-duration U.S. Treasuries, gained a whopping 45.1% in 2014), fixed income had a pretty good year too. Commodities did very poorly (especially oil, obviously; after hitting a peak around $107 a barrel in June, U.S. crude oil futures finished the year at $53.27), while European stocks and emerging markets were spotty, but that’s mostly quibbling, unless you work in the oil industry, and it’s mostly good news for consumers.
More broadly (as Steven Pinker, among others, persuasively argues), in many ways the current world is a huge improvement over what came before. Statistically speaking, tribal warfare was nine times as deadly as war and genocide were even in the 20th century, despite its concentration camps, gulags and killing fields. The murder rate of medieval Europe was more than 30 times what it is today. Slavery, excessive and sadistic punishments, and frivolous executions were unexceptionable features of life for millennia, but are quickly disappearing today (if not nearly quickly enough).
Wars between developed countries have all but vanished, and even in the developing world, warfare kills at a fraction of the rate it did just a few decades ago. Rape, assault, hate crimes, deadly riots, child abuse and more are all substantially less common than they once were. Hunger has been halved in the developing world since 1990. Disease is waning dramatically, allowing most of us to live longer. Things are a long ways from perfect and plenty of problems exist, but the overall picture isn’t half-bad. Not many of us would jump at the chance to switch places with those who lived during other eras.
All of which brings me to my point.
I got home from the East Coast one Saturday evening not long ago after a wonderful holiday with my family. The family—our three children, spouses and grandchildren—was all together for a time of fun and general frivolity. The day we got home was my wife’s birthday so we went to breakfast with the local family members (who had also come home Saturday) the next morning before church and walked at the beach to extend the vacation a little. It was a great day.