The bull run continues for the stock market which posted yet another year of gains in 2014. However, not quite the eye-popping 30% performance that the major averages experienced in 2013. Nonetheless, in 2014 the Dow Jones Industrial Average (chart) gained 7.52%, the Nasdaq (chart) advanced 13.4%, the S&P 500 (chart) gained 11.39% and the small-cap Russell 2000 (chart) finished the year up a modest 3.52%.

Looking ahead to 2015, simply put, if the Federal Reserve stands pat and does not raise interest rates, stocks here in the U.S. should continue to head north. Of course should the U.S. economy continue to expand and the job market continue to improve, we should begin to see rates inch up, which could possibly slow this six-year bull market down. I think the velocity of any rate increases will be the main factor as to how the markets would react. A slow and steady course should not disrupt stocks too much, however, if the fed surprises the street by raising rates too aggressively, then we could be in for a very volatile year. Whatever the case is, I also believe in 2015 the street will be looking more closely to the top-line growth of corporate America in order to justify the lofty average P/E ratio of S&P 500 companies. The current P/E ratio of the S&P is around 18 compared to the historic average of around 15.

Let’s now take a look at the current technical set-up of the aforementioned indices. The Dow Jones Industrial Average (chart), the Nasdaq (chart), the S&P 500 (chart) and the small-cap Russell 2000 (chart) all remain below the 70 value level of the relative strength index (RSI) The 70 value level of the RSI is considered overbought territory. In addition, these indexes are also trading above their 20, 50 and 200-day moving averages which is considered support zones of this particular technical indicator, especially the 200-day moving average. So technically speaking, stocks appear to be on solid footing heading into 2015. That said, Paula and I wish everyone a very safe, prosperous and Happy New Year 🙂

Sincerely,

~George