AAII Stock Screens 2015 Review: Small-Cap Wins During a Large-Cap Year
As I am writing this in mid-December, the first two weeks of this month have sapped what little momentum U.S. stocks had to this point in the year, with the S&P 500 index on track for its first annual decline since 2008. Much of this is attributable to the near certainty that the Federal Reserve will increase interest rates for the first time in nine years, a move that may have already taken place by the time you read this article. However, even before this late-year swoon, 2015 was a disappointing year for the typical stock.
Before I delve in to the performance data of the AAII stock screens, however, let’s take a look back on the year that was 2015. The U.S. economy continued its slow and steady expansion, while the unemployment rate fell. The U.S. unemployment rate stood at 5.0% in November, compared to 5.8% a year ago. Positive economic data continually fueled speculation as to when Fed chair Janet Yellen and the Federal Open Market Committee would finally start the “liftoff” of short-term interest rates.
Overseas, the year began with a political crisis in Greece. A snap election elevated the left-wing Syriza party to power, which rejected the austerity measures imposed by foreign lenders during its last financial bailout. Eventually, an agreement was reached for a third bailout for the country, preventing a Greek default and its exit from the European Union. China’s weakening economy had global markets on edge for much of the year as well. Chinese officials repeatedly cut interest rates and pumped liquidity into the world’s second-largest economy in the hopes of giving it a boost.
At home, while data seems to point to an improving U.S. economy, corporate earnings have hit their weakest patch since 2009. According to FactSet, companies in the S&P 500 are expected to see earnings decline 4.4% in the fourth quarter of 2015. If this forecast proves correct, it would mark the first time the index has seen three consecutive quarters of year-over-year declines in earnings since the first quarter through third quarter of 2009.
Stir all of this together and you have a recipe for a lackluster 2015 for U.S. equities, especially compared to last year. In 2014, the Dow Jones industrial average notched 38 record high closes. This year has only seen six as of the end of November, the last of which came on May 19. On April 23, the Nasdaq composite reached levels it had not seen in 15 years at the peak of the dot-com stock bubble. For a few months after, U.S. indexes moved mainly sideways, until late August.
On Monday, August 24, U.S. stocks tumbled right out of the gate, with the Dow Jones industrial average plunging more than 1,000 points in the opening minutes of trading. The Dow ended down 588.40 points, or down 3.6%, to close at its lowest level in 18 months. That Monday marked the largest one-day point decline ever on an intraday basis, according to The Wall Street Journal. The S&P 500 dropped 3.9%, officially entering correction territory (as defined as a decline of 10% from a recent peak). This ended the fifth-longest correction-free streak for the S&P 500, at 1,421 days. That day also marked the first time since 2002 that the S&P 500 fell by at least 2% for three trading sessions in a row, according to Schaeffer’s Investment Research. In addition, the CBOE Volatility Index (VIX) jumped to a six-year high before settling for a 45.3% gain to its highest close in nearly three years.
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