Nearly-flat year for US markets in local currency

US equities declined only slightly in December, outperforming their European and Japanese counterparts. By far the key event during the month was the first rate hike by the Fed since June 2006. Investors were obviously relieved to get from the Fed a perfect Goldilocks scenario: not too cold, not too hot. The hike came as a relief as this confirms the US economy as strong enough to justify such a raise, and also that the Fed was pointing to a very moderate increase in 2016.

Another key driver for the US market during December was the ongoing decline in oil prices, which kept falling once it became obvious that the OPEC members had abandoned production limits, preferring to focus on protecting their individual market share. Energy-related stocks were by far the worst performers, and the main drag on the index. On the other hand, oil consumers and the defensive sectors held out better or even rose.

2015 was not a great year in local currency for US equities, which ended the year as good as unchanged. However, thanks to the appreciation of the dollar, non-currency-hedged European investors performed well on their US equity exposure.

• As in previous months, B-to-C segments fared better than their B-to-B peers.
• With no further improvement in growth expectations, we made no major moves.
• From a sector point of view, we increased our overweight in Consumer Staples, while slightly reducing Financials after the Fed hike.
• We raised or initiated positions in, among others, Nike, Microsoft or McDonalds, while reducing positions in, inter alia, Apple, Citigroup, AIA and JP Morgan.
• Currently, our most important overweights are Consumer Staples, Health Care and IT. Our largest active positions are Johnson&Johnson, Stanley Black&Decker, Occidental Petroleum and Pepsico.
• We continue to believe that our portfolios should be cyclically oriented. This, combined with low interest rates, reasonably priced equity markets, high free cash generation, increasing dividends and stock buy-backs, as well as a lot of M&A activity, are all elements that favour rising equity markets. Q4 results might give more insight into the state of the economy.