By: Dylan Sikes - AllPennyStocks.com News

Friday, January 2, 2015

After a tremendous 2013 that featured benchmark indexes in the U.S. posting robust gains of at least 25 percent, it was expected by most (including us) that equities would climb higher again in 2014, just at a slower pace than a year prior. It certainly didn’t look like it at first, though, with the Dow Jones Industrial Average, S&P 500 and Nasdaq all recording significant losses in January, including the Dow tumbling more than 5 percent to ring in the new year. So much for the idea of a “January effect” following a “Santa Claus rally.” The lead horse pulling the cart in the rough start to 2014 was a little different than the one in charge as 2015 gets underway. 12 months ago, a large swath of North America was buried under ice and snow in one of the worst winters in decades. The bitter cold was hurting the economy in the first quarter as job creation slowed, consumer spending stalled (hamstring in part by skyrocketing natural gas prices), the housing market limped along, etc. ultimately resulting in the first quarterly contraction (-2.9%) in gross domestic product in three years.

Moreover, Mother Nature giving the nation a taste of her power came at a time when then-Federal Reserve Chairman Ben Bernanke was leaving his position to be replaced by Janet Yellen. Even though Yellen was widely acknowledged as holding a dovish stance on stimulus, the markets were coping with the main bank’s decision to begin tapering monthly asset purchases by $10 billion per month. Since September 2012, the Fed had been holding interest rates near zero and purchasing $85 billion every 30 days in Treasuries and mortgage-backed securities in a bid to stimulate the economy known as quantitative easing.

Via a steady taper plan, the monthly asset purchase plan was concluded in October, but the Fed has not yet lifted interest rates, a topic of constant debate throughout 2014. Since assuming her new role as head of the Federal Reserve, Yellen has spoken every month reiterating her stance that the Fed is carefully monitoring economic data and in no rush to raise interest rates until bank officials are convinced the U.S. economy is strong enough to handle such a move. Understand that the Fed is mainly charged by the government with two tasks: controlling inflation and doing what it can to keep the unemployment rate low. Whether a person agrees with the policies employed or not, the central bank has been meeting these obligations, which has helped the stock market continue to climb. Inflation remained benign all year, holding beneath the Fed’s 2.0% target. Unemployment, which ended 2013 at 6.7%, dropped to 5.8% in November 2014, the latest figure available and lowest unemployment level in six years.

Yellen was cautious most of the year and told Wall Street exactly what it wanted to hear, including in May saying that despite the frigid winter that GDP for 2014 will likely exceed the 1.9% growth in 2013. Looks like the chairwoman was right as two stellar quarters (4.6% annualized growth in Q2 and +5.0%, annualized growth in Q3) have the nation easily on pace to top all expectations, although there is no shortage of critics saying the figures were skewed upward by unsubstantial factors and accounting tricks by the Commerce Department.

Elsewhere in Washington, Wall Street also cheered mid-term elections in November, as Republicans took control of Congress by keeping control of the House of Representatives and winning the Senate for the first time in eight years. Wall Street appreciated the election results as Republicans are generally viewed as more friendly to businesses.

Stocks in the States rallied after the slow start to the year, with the Dow climbing for the six subsequent months and the S&P 500 each month through June as the two lead indexes steadily printed record highs. Despite a few up and down moments, including a tanking and massive recovery in October, the record-setting trend continued throughout the remainder of the year. The Dow made 38 record highs in 2014 and broke through 18,000 for the first time ever. Meanwhile, the S&P 500 made a new closing record 53 times last year as it pushed above 2,000 for the first time in history. The Nasdaq made its highest monthly close ever and even climbed to about 300 points short of its record intraday high of 5,132 from March 2000 at the peak of the dotcom bubble.

While there certainly were some guessing games about what lies ahead for the Fed throughout 2014, investors mostly used the “Keep It Simple, Stupid” method of investing, leading to gains for bigger companies outpacing smaller, often times more speculative, counterparts. The 30-stock Dow index recorded its sixth consecutive year of advancing, rising 7.52% in 2014. The more diverse S&P 500 rallied for the third straight year, climbing a strong 11.39%, while the tech-heavy Nasdaq led the way for major indexes by tacking on 13.4% last year. These advances compare to the Russell 2000 Small Cap Index notching gains of only 3.53% in 2014.

As far as individual stocks in blue chip indexes, Intel (NYSE:INTC) was the best Dow component in 2014, rising 39.79%. As for the S&P 500, Southwest Airlines (NYSE:LUV) was the biggest winner, surging 124.63%. The worst S&P 500 component was Transocean (NYSE:RIG), who’d probably rather forget about 2014 after carving off 62.91% of its value.

From a broader view, utilities – which returned on average a dividend of 3.3% in 2014 – were the best of the S&P 500’s ten sectors with gains of 24.3%. Health Care wasn’t far behind, recording an advance of 23.3%. Only Telecommunications (-1.9%) and Energy (-10.2%) were down on the year. The drop in energy plays was paced by oil prices cratering in the second half of 2014.

West Texas Intermediate Crude, the benchmark U.S. commodity, traded as high as $107.68 in June as traders saw the U.S. economy growing stronger against the backdrop of global political unrest in major oil-producing countries, two motivators for higher oil prices. With no real threats to the global oil supply chain manifesting and the U.S. shale boom helping to keep the world more than adequately supplied with oil, pressure started subsiding on oil prices. The downward pressure accelerated in November when the Organization of Petroleum Exporting Countries (OPEC) refused to support higher prices by lowering production. Making matters worse, Saudi Arabia, the world’s lowest-cost producer by a long shot, earlier cut prices of oil to key countries (including the U.S.) and planted its feet on not slowing production by even a barrel in a bid to give the world a good ole fashion sweating and shake out higher-priced producers as it fluffed out its peacock feathers in a show of oil dominance. The result of the confluence of factors resulted in WTI crude ending 2014 at $53.71, down 50.1% from its June high.

As always, we’ll keep things in this annual re-cap focused on domestic happenings, but it is impossible to look back at 2014 and not recall the events in Ukraine and Iraq as they had (and still have) an impact on the world. In March, Russia “officially” annexed Crimea from Ukraine, taking tensions between the two countries to new heights and resulting in a spate of sanctions against Russia by leading countries worldwide. In return, Russia put forth their fair share of sanctions as well. Throughout all of 2014, Russian President Vladimir Putin has played a game of cat and mouse with Ukraine, moving troops in and out of the country – under the banner of peacekeeping and humanitarian aid for pro-Russian separatists – and conducting so-called “exercises” at the countries’ border. At the moment, the idea of a war is on the back burner, but going forward will start to demonstrate the impact of the sanctions, especially with regard to how they affect Russian oil and natural gas exports throughout Europe.

In Iraq, 2014 was a bloody year with violence continuing as the extremist Sunni militant group dubbed the Islamic State of Iraq and Syria (ISIS) remaining on the offensive and overtaking chunks of territory, including battles over key oilfields. Deaths in Iraq have doubled year-over-year for three straight years, reportedly topping 17,000 in 2014. A U.S.-led international coalition remains active in the battle to support Iraqi forces.

2014 was a banner year for merger and acquisition activity worldwide with more than $3 trillion in deals announced. Some $400 billion of that came in the health care sector alone. Some transactions are still subject to regulatory approval and it would certainly be impossible to cover all the deals in this article, but we’ll take a quick look at some big-dollar amalgamations and run through some developments at some high-profile individual companies that were in the headlines this past year.

The regulatory vote still isn’t in yet in Comcast’s (NYSE:CMCSA) effort to buy rival Time Warner Cable (NYSE:TWC) for $45 billion. Although, at this stage it seems more likely than not that the FCC and Justice Department are going to give the deal the requisite blessing, even though the media industry, consumers and even plenty of shareholders don’t seem happy about it going through, with some anti-merger projects in place to try and stop it. Rupert Murdoch’s 21st Century Fox (NASDAQ:FOX) had been in the hunt for TWC too, but abandoned its efforts in August after TWC rejected Fox’s $80 billion offer.

Also in the television space, AT&T (NYSE:T) penned a deal in May to acquire satellite TV giant DirecTV (NASDAQ:DTV) for $48.5 billion.

In the oil patch, after threatening to go hostile with a takeover, Halliburton Co. (NYSE:HAL) in November came to friendly terms to acquire smaller oil-services provider rival Baker Hughes (NYSE:BHI) in a cash-and-stock deal valued at $34.6 billion.

In July, tobacco giants Reynolds American (NYSE:RAI) and Lorillard (NYSE:LO) announced plans to merge in a cash-and-stock transaction valued at $27.4 billion. In order to try and gain regulatory approval, the deal calls for Reynolds to sell certain brands and assets to Imperial Tobacco (OTCQX:ITYBY), while British Tobacco will hold its stake in Reynolds.

Drugmaker heavyweight Merck (NYSE:MRK) added to its size with acquisitions in 2014, including agreeing in September to buy life-science and technology company Sigma-Aldrich in a deal worth about $17 billion, representing the German biotech’s biggest acquisition ever. More recently, Merck has offered to dish out $9.5 billion to buy Cubist Pharmaceuticals (NASDAQ:CBST).

In a couple wilder deals, Family Dollar (NYSE:FDO) was the focus of a bidding war between rival discount retailers Dollar Tree (NYSE:DLTR) and Dollar General (NYSE:DG). The two companies playing leapfrog with offers ended with Family Dollar’s board rejecting Dollar General’s $9.1-billion bid and voting in favor of taking Dollar Tree’s $8.5-billion offer as a better match for the company (with less antitrust issues). This battle isn’t over as Dollar General has gone hostile and taken its offer directly to FDO shareholders.

It’s not that the deal was gigantic, but the takeover games that went back and forth between clothiers Men’s Wearhouse (NYSE:MW) and Jos. A. Bank (formerly NASDAQ:JOSB) were entertaining for those that followed along. After flipping the script on Jos. A. Bank’s buyout efforts, Men’s Wearhouse finally won FTC approval in June in a $1.8 billion deal that resulted in a company with about $3.5 billion in pro forma sales, 1,700 locations and more than 23,000 employees.

Facebook (NASDAQ:FB) didn’t have any issue spending part of its cash horde last years, saying in February it was paying $19 billion in cash and stock to purchase fast-growing mobile-messaging startup WhatsApp. The social media beast followed that shortly after announcing it was spending $2 billion to snare virtual reality headset startup Oculus VR to get ahead of the game in what the company believes is the next generation of social media, entertainment and education.

Osaka, Japan-based Suntory Holdings Ltd, a privately held beverage giant and parent to Suntory Beverage, agreed to acquire Beam, Inc. for $83.50 per share in cash in a deal worth about $16 billion, including the debt.

As far as some uber-mergers that didn’t happen, Pfizer (NYSE:PFE) recently gave up on its efforts to merge with Britain-based drug giant AstraZeneca (NYSE:AZN) in a deal where Pfizer was willing to pay about $110 Billion for all the shares of AZN. With U.S. regulators clamping down on so-called “tax inversions” (where a US-based company buys a foreign company and then re-domiciles to avoid paying the steeper U.S. taxes), a second round of bidding seems unlikely. Also in the biotech space, AbbVie (NYSE:ABBV) and Shire Ltd. (NASDAQ:SHPG) couldn’t bring a deal to fruition in which AbbVie would have bought the Irish drugmaker for approximately $54 billion. Shire agreed to the price, but AbbVie backed out in October, citing new U.S. rules to thwart tax inversions.

In some corporate news, activist investor Carl Icahn got his way in September as e-commerce company eBay (NASDAQ:EBAY) finally agreed to spin-out its profitable PayPal unit as a separate company. Apple (NASDAQ:AAPL) had another busy year, releasing the newest iterations of its vaunted iPad and iPhones, spending $3 billion to acquire headphone maker Beats and bring the cost of a share down for more of the common investor to get a piece via a 7-for-1 forward split. Shares printed an all-time high in November. Speaking of splits, fellow tech monster Google (NASDAQ:GOOGL) did a 2-for-1 forward split and switching its Class A shares to the longer ticker with a “L” on the end.

In probably the most anticipated IPO of the year, China e-commerce giant Alibaba (NYSE:BABA) went public in September. It wasn’t only the most anticipated IPO, it was also the biggest ever as the company raised a stunning $25 billion through its share offering. The raise topped the previous record set in 2010 by Agricultural Bank of China Ltd. (OTC:ACGBY) in which the lender raised $22.1 billion.

All in all, the bull run continued in 2014, overcoming sinking oil prices, worries about the end of QE3 and any overseas concerns, albeit geopolitical or financial turmoil. The upward trend slowed some from 2013, but still looks fully intact as it nears six years in length since rebounding in early 2009 after the markets collapsed at the hands of the Great Recession. There will be plenty of telling moments this year, namely the likely raising of interest rates for the first time since late 2012, watching sentiment towards indebted energy plays with crude prices so low and the impact of flagging foreign economies on US companies, but there should be a return towards normalcy to a degree with traders focusing on earnings. That said, there’s likely still going to be some volatility (there always is), but 2015 at least looks to be getting off on the right foot, with the markets edging up early in the first day of trading in the new year.

Lastly, we would like to wish all of our visitors and members a Happy, safe and prosperous New Year from all of us at AllPennyStocks.com.

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