December ETF Scoreboard: Crude’s Demise and Biotech’s Endless Rise
By: Christopher Mistal
January 06, 2015
After a rough start, the market did find support in mid-December and did trade at new highs. But, the typical holiday-fueled yearend rally was cut short and December came to a close in the red due to sizable losses on the final two trading days of the year. For the month, DJIA slipped 0.03%, S&P 500 fell 0.4% and NASDAQ shed 1.2%. After lagging nearly the entire year, Russell 2000 was the overachiever in December, up 2.7%. For the year, DJIA was up 7.5%, S&P 500 11.4%, NASDAQ 13.4% and Russell 2000 3.5%. For a midterm year, the market did do better than average in 2014, but it come up short of past Sixth Years of Presidential terms.

For the year, Biotech/Pharmaceutical and Semiconductor sectors were the best, both advancing more than 30%, on average, in 2014. Healthcare, Real Estate, Utilities and Technology were also strong. Another sector whose performance is of note is Bonds. Early in 2014, Bonds seemingly had only one direction to go, down. However, sluggish growth outside the U.S., compared to relatively solid growth here, kept investor and trader demand strong. As a result, the Bond sector finished the year with an average 6.2% gain. Long-dated Treasury bonds performed the best.

At the opposite end of the spectrum were Energy (off a whopping 19.5%), Natural Resources/Gold (–10.8%), Currency and Foreign related sectors. Aside from Foreign-related ETFs, 2014’s losing sectors will likely remain weak in 2015. There will be tradable rallies, but the decade-plus commodity bull market has ended. The demise of commodities and the rise of biotechnology is possibly an early indication that the beginning of the next secular bull market is nearly here, but there will likely be at least one more substantial market washout before it begins. 

December’s poor close resulted in average declines for 21 of 29 sectors tracked. The five worst performing sectors were: Energy (–6.8%), Foreign Market (–4.8%), Foreign Multinational (–4.2%), Telecom (–4.0%) and Leveraged Long (–2.6%). The Energy and Foreign sectors are well represented in the 1-Month Losers list, led by a whopping 30.5% decline by United States Natural Gas (UNG). Crashing crude oil prices also tanked Russia-related ETFs. Market Vectors Russia Trust (RSX) was the worst, off 22.0% in December. Tepid global growth, an abundance of supply and producers reluctant to cut production are all weighing on crude oil’s price. Seasonally, crude oil is likely to remain weak until late-January or early February when refiners begin to prepare for the summer driving season.

Despite a poor overall month, several bright spots were present in December. Aside from the previously mentioned small-cap outperformance, China-related funds continued to perform well in the month. Market Vectors China A-Shares (PEK) was the month’s top performing non-leveraged ETF, gaining a solid 23.5%. Second best, due to the late-month sell off, was ProShares VIX Short-Term Futures (VIXY), up 15.2% in December. SPDR Semiconductors (XSD) and iShares DJ US Broker-Dealers (IAI) also performed well, gaining 5.5% and 5.2% respectively.

New 52-Week Highs climbed slightly higher in December as major indices reached new highs late in the month, but New 52-Week Lows also expanded. Of the 317 New Highs, 168 were recorded on December 29 when the markets closed at the highs of the year. Excluding Energy, Bear/Short and Natural Resources/Gold, New Highs were produced in all other sectors. New Lows were comprised heavily of Energy, Bear/Short funds and Foreign ETFs.  

December 2014 ETF Scoreboard Trading Diary
December 2014 Sector Performance
December 2014 ETF Winners & Losers

Disclosure Note: At press time, officers of the Hirsch Organization, or accounts they control held a position in UNG.