Main BOS Logo

Quarterly Summaries

2015 Quarterly Summaries

prev next

Review of Securities Markets, First Quarter, 2015

The heightened volatility that began in the fourth quarter of last year continued in the first quarter of 2015. By the end of January, the broad U.S. stock market was down about 3% as investors were warned once again that the Federal Reserve intended to raise interest rates soon. Stocks recovered these early losses in February following published economic reports suggesting that the pace of growth of the U.S. economy was slowing. At the same time the economy was appearing to slow, U.S. corporate executives expressed fears about the difficulty of competing in a world with a much stronger U.S. dollar. As often happens, disappointing news for the economy was good news for stocks as investors concluded that the weaker economy would lead the Fed to move more slowly in raising interest rates. By the end of the quarter, the S&P 500, which measures the performance of the largest publicly traded stocks in the U.S. , was up about 1%.

2014 was a relatively difficult year for smaller companies in the U.S. but the first quarter of 2015 saw the best known small company stock index, the Russell 2000, rise close to 4%. Small companies are less dependent upon foreign markets than are larger companies so the stronger dollar has less of an impact on small company earnings.

International equities outperformed U.S. stocks during the quarter as quantitative easing was implemented in the Eurozone and a low but stable yen increased demand for Japanese exports. Developed overseas markets returned roughly 3.5% in the aggregate. Japan, which has the largest market capitalization outside of the U.S., returned more than 10%. The main Japanese stock market index, the Nikkei 225, has generated strong returns recently but is still only about half that of late 1989. Think about that for a minute: even after having doubled in value over the past couple of years, the world’s second largest stock market has returned roughly -50% over a period of more than 25 years.

Volatility in the bond market was also high in the first quarter. The year began with the 10-year Treasury yielding 2.2% and yet by the end of the quarter it was lower still, at 1.9%. The Barclays Aggregate Bond Index, the most closely followed bond benchmark, was up 1.6% during the quarter. Foreign bond interest rates also fell but returns were offset by depreciating underlying currencies. Hedged foreign bonds rose by more than 2%. Unhedged foreign bonds fell by similar amounts.

The Bloomberg Commodity Index was down close to 6% as the price of oil continued to decline in the first quarter. Gold was roughly flat.

Greece, Again?

One encounters again stories regarding the finances of Greece. With baseball season back in full swing, we acknowledge that it takes considerable self-discipline to re-engage on this topic. For those inclined to read as little about Greece as possible but still be equipped with the basics, we offer here a quick take on Greece’s recent economic history and why the situation there is regarded as important for all of Europe.

It seems like yesterday but it was in October 2009 that the government of Greece announced that it had been cooking its books for a long time. Like other countries, Greece was required to have a deficit of no more than 3% of gross domestic product (GDP) in order to be admitted to the European Monetary Union (EMU) and since 2001 Greece had proclaimed itself to be in good standing. When the government announced that the deficit would be 12% of GDP that year (the actual deficit was closer to 15%), panic ensued.

As interest rates rose (what interest rate would you have required if you were lending money to Greece?), the country could no longer pay its debts. It was forced to borrow hundreds of billions of euros from the European Central Bank and the International Monetary Fund. In return for these funds, Greece had to promise to implement a series of severe austerity measures. Since one in five Greeks worked in the bloated public sector and since there was (and is) no effective mechanism for tax collection, achieving fiscal balance amidst a terrible global recession proved all but impossible.

Picking up the story six years later, Greece is only now emerging from recession. Its economy is a full quarter smaller than it was at the onset of the crisis. By comparison, the U.S. economy shrunk by roughly one-third in real terms during the Great Depression of the 1930s. The situation remains dire. More than 40% of Greeks have incomes that fall below the official poverty line (about $9,000 per person per year). The unemployment rate is 26%. Even the suicide rate is distressingly high.

Facing many more years of painful austerity, in January of this year, Greek voters elected a new government that pledged an end to budget cuts. Instead, Greece would ask its creditors both to extend the term of its loans and to accept “haircuts”, a reduction in the value of outstanding debt. To date, though, the creditors aren’t budging. They maintain that Greece has not yet done enough to push through structural reforms.

With Greece set to run out of money in the next few months, this can cannot be kicked too much further down the road. Unlike the U.S., Greece does not control a printing press it can use to create new money and pay its debts. The fear is that Greece might choose to stiff its creditors, exit the EMU (hence the term “Grexit”) and go back to using the drachma. The economic consequences of such an action are impossible to anticipate for all concerned parties, and yet it is the potential political fallout that causes the most anxiety. A Greek exit from the EMU would establish a new precedent. If this occurred without too much hardship for Greece’s citizens, residents of other highly indebted countries such as Spain, Portugal, and Italy could be tempted to follow Greece’s lead. The grand project of European unification might seriously unravel.

Written by Jeff D. Lancaster, CFP®, Principal; [email protected]

Quarterly Review of Securities Markets: Total Return

IndexMarketYear-to-Date as of 3/31/15
Standard & Poor’s 500Large Co. U.S. Stocks0.95%
Russell 1000 ValueLarge Co. Value U.S. Stocks-0.72%
Russell 2000Small Co. U.S. Stocks4.32%
Russell 2000 ValueSmall Co. Value U.S. Stocks1.98%
FTSE NAREIT EquityReal Estate Investment Trusts3.98%
NASDAQ 100Technology Stocks2.30%
MSCI EAFE1Foreign Stocks4.88%
Barclays AggregateU.S. Dollar Bonds1.61%
Barclays MunicipalMunicipal Bonds1.01%
BofA Merrill GlobalGlobal Bonds‐0.98%

Key Economic Indicators


  • Real Gross Domestic Product (real GDP) in the U.S. increased at an annual rate of 2.2% in the 4th quarter of 2014. The deceleration in real GDP growth from the 5.0% rate in the 3rd quarter primarily reflected an upturn in imports and a downturn in government spending.
  • In its meeting in March, the Federal Reserve Open Market Committee agreed to continue holding the target range for the federal funds rate at 0% to 0.25%. The Committee anticipates that it will be appropriate to raise the target range for the federal funds rate when it has seen further improvement in the labor market and is reasonably confident that inflation will move back to its 2% objective over the medium term.
  • TheU.S.unemploymentratewas5.5%inMarch.Totalnonfarmpayrollemploymentincreased by 126,000 in March. However, over the prior 12 months, employment growth had averaged 269,000 per month. The number of long-term unemployed has changed little, and represents 29.8% of total unemployed.
  • Inflation, as measured by the Consumer Price Index for All Urban Consumers (CPI-U), increased 0.2% in February. Over the last 12 months, the food index rose 3.0% and the energy index decreased 18.8%.
  • Standard & Poor’s 500 Index projected operating earnings per share for the 4th quarter 2014 decreased by 9.6% from the 3rd quarter. Earnings decreased 5.3% from the same quarter last year. Analysts are expecting earnings to be flat in the 1st quarter of 2015.
  • US nonfarm worker productivity decreased at an annual rate of 2.2% during the 4th quarter of 2014, as hours worked increased by 4.9% and output increased by only 2.6%. Productivity decreased 0.1% from the 4th quarter of 2013 to the 4th quarter of 2014.

TheComexspotrateforgoldwasvirtuallyflatinthe1stquarterof2015,declining0.07%to close at $1,183.10 an ounce. Expectations for next quarter are positive with indications that the Federal Reserve will hold off on hiking interest rates until later in the year. A delay in raising interest rates would be seen as bullish for gold, as it decreases the relative cost of holding on to the metal.


U.S. crude oil prices continued on their downward trend in the 1st quarter of 2015, dropping 10.6% to close at $47.60. As the framework for Iran’s nuclear program is formed, it is anticipated that Iran’s oil supply could potentially make its way into the market after sanctions against them have been eased, thus increasing the supply of oil.

Key economic indicators compiled by Barbara A. Ziontz, CFP®, Portfolio Manager; [email protected]

Data Sources:

The Wall Street Journal; U.S. Dept. of Commerce – Bureau of Economic Analysis; U.S. Dept. of Labor;;;;;;;

(1) Source: MSCI. Neither MSCI nor any other party involved in or related to compiling, computing or creating the MSCI data makes any express or implied warranties or representations with respect to such data (or the results to be obtained by the use thereof), and all such parties hereby expressly disclaim all warranties or originality, accuracy, completeness, merchantability or fitness for a particular purpose with respect to any of such data. Without limiting any of the foregoing, in no event shall MSCI, any of its affiliates or any third party involved in or related to compiling, computing or creating the data have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages. No further distribution or dissemination of the MSCI data is permitted without MSCI’s express written consent.


This information is for informational purposes only and is not intended to be used as a general guide to investing or financial planning, or as a source of any specific recommendations, and makes no implied or express recommendations concerning the manner in which any client’s account should or would be handled, as appropriate investment strategies depend upon the client’s specific objectives. It is the responsibility of any person or persons in possession of this material to inform themselves of and to seek appropriate advice regarding any applicable investment decisions, legal requirements, and taxable regulations which might be relevant to the topic of this information.

This information does not constitute a solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful. Moreover, this information neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to the document by making an offer to enter into an investment agreement.

The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk. Past performance is not indicative of future results, which may vary. The value of investments and the income derived from investments can go down as well as up. Future returns are not guaranteed, and a loss of principal may occur.

Opinions expressed are current opinions as of the date appearing in this material only and are subject to change. No part of this material may, without the prior written consent of Bingham, Osborn & Scarborough, LLC, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer, director, or authorized agent of the recipient.

©2015 Bingham, Osborn & Scarborough, LLC


Get B|O|S Perspectives
in Your Inbox