Looking back at the top money stories of 2015
As the year draws to a close, some guarded optimism is in order for the U.S. economy. The economy is growing at a decent pace, and unemployment is at a seven-year low of 5 percent. Let’s review the stories that shaped the world of money over the past 12 months.
China: The year began with China in the midst of a stock market boom. The steep ascent started in mid-2014, after the government urged small investors to enter the market. “Policy makers and state media continued to trumpet the rally even as prices rose well beyond most reasonable estimates of fair valuation,” commented the research consultancy Capital Economics as a bubble formed.
By its peak on June 12, the Shanghai Composite was up over 160 percent from the 2014 lows. Chinese officials stepped in to try to deflate the bubble gently, but the market tumbled by over 40 percent before recovering some of the losses.
More worrying was the pace of growth in China. The world’s second-largest economy had seen growth topping 10 percent annually for two decades, but now had downshifted to a 5-6 percent pace. Despite it all, there was no catastrophic “hard landing” as many had predicted. However, the Chinese downshift, combined with a strong U.S. dollar, made 2015 tough for U.S. manufacturers, who experienced their worst year since 2009.
Greece: Another year, another flirtation with disaster for Greece and the eurozone. After an election, a snap referendum and lots of political gamesmanship, Greece accepted the harsh terms of yet another European bailout. The Greek tragedy might be mistaken for comedy, if the human stakes were not so high.
U.S. stock market correction: It took four years, but U.S. stocks finally dropped by more than 10 percent in August. Investors were long overdue for the sell-off: according to Capital Research and Management, through 2014, 10 percent corrections have occurred about every year and 20 percent bear markets about every 3.5 years — so we are also due for one of those (the last one ended in March 2009).
Oil plunge: After a 46 percent drubbing in 2014 that pushed crude down to $53.27 per barrel, oil traded above $60 early in 2015. But as news emerged that China was slowing down, the bears took hold. In addition to softening demand, global production remained high. Whether it was the U.S.-based frackers, OPEC nations, Russia or Brazil, oil producers kept the spigots wide open. As a reminder of Econ 101: weak demand plus ample supply equals lower prices. The savings at the gas pumps was supposed to propel retail sales in the U.S., but most Americans chose to save those extra pennies rather than spend them.
Federal Reserve rate hike: In mid-December, the U.S. central bank raised short-term interest rates. Future Fed actions should eventually return rates to the vicinity of 3.5 percent, but how markets will react is unknown. After all, the last nine years was the longest stretch without a fed hike in 25 years. To say that the economy is in uncharted and choppy waters may be the understatement of the decade.
THE CHINESE DOWNSHIFT, COMBINED WITH A STRONG U.S. DOLLAR, MADE 2015 TOUGH FOR U.S. MANUFACTURERS.