The global equity markets ended the year with heightened volatility and uncertainty. Sluggish non-U.S. growth, global central bank policies and geopolitical events continue to be of focus for investors. At its November meeting, the Organization of Petroleum Exporting Countries (“OPEC”) voted not to cut production despite rapidly declining oil prices. The continued decrease in oil prices as well as the strengthening of the U.S dollar relative to major developed market currencies led to losses for the year in all major non-U.S. global equity asset classes and commodity prices.

The non-U.S. equity markets experienced a decline for the quarter, causing the overall returns for the year to end in negative territory. Concerns over slowing global growth and deflation, particularly in the Eurozone and Japan, were large detractors from performance. The Bank of Japan continues to be aggressive with their quantitative easing to help stave off deflation, injecting an additional $29 billion in stimulus during the quarter, bringing their asset purchases to approximately 57% of Gross Domestic Product (“GDP”) for 2014. The fear of deflation is also a concern in the Eurozone following weak economic data from Spain and Greece. The year ended with indications that a final decision from the European Central Bank (“ECB”) on the implementation of quantitative easing is imminent as there has been increased pressure on the ECB to enact more aggressive stimulus programs to avert deflation in the Eurozone. China’s central bank also signaled a more relaxed monetary policy when they cut interest rates for the first time in two years in response to their slowing economy.

The U.S. equity markets ended the year with strong gains. While small capitalization firms outperformed their mid- and large- capitalization peers for the quarter, they underperformed by a wide margin for the year largely due to investor concerns of overvaluation. Within the S&P Index Sectors, Utilities was the strongest performing sector for the year as dividend yields remained attractive on a relative basis during a period where Treasury yields continue to decline. Energy was the only sector that returned negative performance on a one-year time period as a strengthening U.S. dollar and slowing global growth caused a sharp decline in the price of oil.

All of the fixed income sectors ended the year in positive territory on an annualized basis. Treasuries outperformed for the quarter as investors view Treasuries as cheap relative to government bonds around the world and continue to see Treasuries as a safe haven during this period of market volatility and weak global economic growth. Emerging Market Debt was the worst performing sector for the quarter due to the appreciating U.S. dollar and declining oil prices. High Yield also returned negative performance as investors viewed the sector as being overvalued and the fear that falling oil prices may cause energy companies to default.

The domestic economy continued to expand and experienced solid job growth in December with the jobless rate at its lowest since June of 2008. Despite the decreasing unemployment rate, downward pressure on the labor force participation rate still remains largely due to the Baby Boom population exiting the workforce. The Federal Reserve (the “Fed”) concluded their third round of asset purchases at their October meeting, but maintained the Fed Funds rate at 0.00% – 0.25%. The Fed will continue to invest the proceeds of maturing securities. The U.S. dollar continued to strengthen on speculation that the Fed will begin to tighten their monetary policy and raise interest rates in the near future. However, the lack of wage growth and declining oil prices kept inflation at bay, with headline and core inflation decreasing to 1.3% and 1.7%, respectively. Headlines to consider in 2015: the Fed’s timing of increasing interest rates, immigration reform, and geopolitical events, particularly in oil-dependent nations.

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