2015: The Year Ahead

Growth is the big question on investors’ mind as 2015 gets underway. The bond market doesn’t expect there to be much, as evidenced in current spreads between nominal yields and inflation. Growth is particularly subdued in Europe, where aggressive stimulus led by the European Central Bank is perceived as the only immediate recourse to heading off deflation and bringing a measure of health back to the job market. On the other hand, growth prospects in the U.S. appear brighter than at any time since the recession. That could position U.S. equity markets for another up year, though the pace may be held in check by earnings growth. The relative absence of inflationary pressure may give the Fed further pause before embarking on the long-expected program of raising interest rates. Finally, the wild card in the deck as the year gets underway is what the recent collapse in energy prices will mean for the broader economy and asset markets. There is a heightened undertone of volatility that could result in both upside and downside surprises. Fasten your seatbelts – it may be a bumpy ride.