The end of the year provides an opportunity to reflect upon last year’s expectations, analyze the facts, and establish new market expectations. One caveat in this annual ritual is that stocks, bonds and commodities will travel their own path regardless of what the prognosticators claim. The noise coming from the bulls and bears will be even louder this year and it will be critical for investors to check their emotions at the door and begin to focus on those things under their control. Before worrying about where the market is going, analyze where your financial plan is headed. Things like asset allocation, diversification, risk, savings, spending, income, growth, and principal preservation matter greatly. Controlling the things under your control will lead to better long-term financial decisions.

Entering 2014 we expected stocks to produce high single digit returns with seven percent corporate earnings growth, a two percent dividend yield with valuations (price/earnings ratios) remaining constant. At the end of the day, the stock market generally delivered. The S&P 500 exceed expectations gaining 13.7 percent with a small valuation increase. The Dow Jones Industrial Average was up 10.0 percent while the more volatile NASDAQ gained 14.7 percent. International stocks once again underperformed as slower economic and profit growth in those markets generated flat to slightly negative results.

Entering 2014 we expected bonds to earn their coupon generating returns in the low single digits. On average, this was true but the sectors within the bond market produced an unexpected wide dispersion of outcomes. The yield curve flattened as short-term interest rates were locked in near zero and yields on seven, ten and thirty year bonds declined causing U.S. Treasury prices to rise. The twenty plus year Treasury Index posted equity type returns of 25.1 percent. The high yield corporate bond segment of the bond market surrendered to a 40 percent decline in oil prices as credit default concerns heightened. High yield bonds still posted a 2.5 percent gain for the year.

So where does this leave the markets for 2015? Stock valuations are currently stretched a bit and fourth quarter earnings announcements are the key to maintaining the positive price momentum. Expect greater volatility in the coming year as oil price changes impact both stock and bond markets and economic recovery or recession in Europe will play a major role in the market direction. As always, geopolitical events will add to sudden price movements. We expect corporate earnings to grow at five to six percent. This coupled with a two percent dividend yield and moderate decline in price earnings ratios lead us to a return expectation of six to seven percent in stocks next year. Market corrections should be viewed as buying opportunities as we believe this is a long-term secular bull market.

Bond yields are low and likely to stay here for an extending period of time. The yield on the ten year U.S. Treasury note is 1.64 percent higher than the German ten year Bund. It has been fifteen years since this spread was this wide. Expect long U.S. Treasury yields to continue their move lower. The Federal Reserve remains dovish and the economic environment will continue to provide cover for their current policies. Expect short rates to stay low for the first half and maybe 25 basis points higher in the second half of the year. Two to four percent are fair bond return expectations for 2015.

Commitment to your financial plan while keeping market driven emotions removed from financial decision making process will make or break individual results this year. Remove the emotional panic button from the investment equation. When we get the ten percent price decline, think buy more versus running to cash. The long-term investor will be rewarded. Embrace your financial plan and stay for the long haul.

November was another stellar month for both the stock and bond markets. For two weeks in early October it looked like the long awaited market correction was finally upon us. The eight to ten percent price declines were quickly erased and by the time November began the markets were back on their bullish trajectory. When historians analyze returns of the S&P 500, this run will be a bull market by any definition. Although it’s a bull market on paper, it’s been a bear market waiting to happen in the hearts and minds of many investors.

This bull market sprouted from the ashes of the 2008 financial crisis. Many investors lost trust in Wall Street, corporate America, the government and the markets themselves. While the negative noise from the media was overwhelming, the market quietly began to notice economic improvements which translated into higher stock prices. Prices rose due to confident consumers, profitable growing companies with reasonable valuations, low inflation, low interest rates, higher productivity, and ever expanding technology. These factors are likely to propel the market higher in the quarters and years ahead but there will be corrections along the way. If we compare this bull market to past ones there is still plenty of time and room for price appreciation and long term wealth creation.

November’s stock market results had similar themes to previous months. The U.S. outperformed international and smaller companies outperformed larger companies. NASDAQ, on the strength of Apple Computer and other technology companies, lead the way with a 3.66 percent return for the month. The Dow Jones Industrial Average and the S & P 500 were close behind with a respectable 2.69 and 2.86 percent return. Major international equity indices were slightly negative for the month leaving them barely positive over the trailing twelve months.

In bond land, interest rates traded in a very tight trading range for most of the month until the strong dollar and weak oil prices provided a small bond rally into month end. The 10-year U.S. Treasury broke through 2.20 percent once again heading toward that magical 2.00 percent yield. The high yield sector of the bond market was subject to additional credit spread widening as investors demanded a higher premium for debt rated below investment grade. High yield spreads are widening from historical tight levels, so the move here to wider spreads and lower prices is both rational and welcome for longer term bond valuations.

Coming off the October scare, it’s important to remind ourselves market timing is a loser’s game. We cannot tell where the market will be at the end of this year or next, but we can say with certainty the stock market creates wealth over long periods of time. The bond market generates income, albeit a small in today’s world, and can balance the risk of stock ownership. Together in the right proportions a portfolio can be built to properly manage risk and keep investor’s invested. The adage, “It’s time in the market, not timing the market”, provides great investment advice. The key to financial success is finding your own personal balance point that keeps you invested throughout the various market cycles. Discuss your personal financial situation with your independent advisor to design a personalized balanced portfolio, then, let it grow.