Our 12 month target for the S&P 500 is 2,200, representing an 8% price increase for 2015.  Our overall projection is for single digit percentage gains by major stock indexes in 2015 based on several factors that seem probable for next year.  Most analysts expect that the U.S. economy will grow 3% in 2015.  Our sources project an 8.6% average rise in earnings per share in 2015.  In addition, we expect the year-over-year increase in the CPI to remain below 2%.  Unemployment will go lower.  Investors, we feel, will largely discount the start of the Federal Reserve Board’s raising the fed funds rate.  History suggests that the rate rise will probably cause stocks to initially fall, but mostly continue higher primarily due to continued good earnings increases.

Of course volatility will be ever-present in 2015.  No one knows for sure what the main causes will be.  Last year, shocks like oil’s dramatic drop and Russia’s currency crises are a reminder that unpredictable events can cause volatility.

We believe U.S. stocks will do better than international stocks in 2015.  We expect global stock investors to favor U.S. stocks due to stronger (and more assured) GDP and earnings growth forecasts.  Even though valuations look more appealing for international stocks, we believe investors worry that earnings may decline over time.  Europe is struggling to grow.  So is Brazil.  Japan has slid into a recession.  China is straining to manage its slowdown.  Russia is nearing a recession.

Analysts, with whom we communicate, expect nine of the ten industry sectors to post year-over-year earnings increases, led by healthcare, consumer discretionary, and financials (energy is the only exception).  Our business outlook leads us to over-weight the healthcare, consumer staples, and industrials sectors.  We identify these sectors as particularly attractive for stock price growth largely due to their attractive valuations.  Our criteria for stock selection within these sectors continues to be for companies with a strong balance sheet, management depth, above average growth expectations, a good dividend yield and a strong record of dividend increases.

Looking ahead, we will continue to heavily weight stock mutual funds focusing mostly on high quality good dividend-producing companies.  We especially like selected lower risk mid-cap funds, and certain specialty funds whose performance does not correlate with the other funds.

In our previous annual outlook a year ago we forecasted that, interest rates would    rise – but they fell.  The biggest financial surprise in 2014 was the decline in interest rates.  Without exception, economists predicted a "cannot miss consensus" that interest rates would rise – but they fell.  A year ago, the 10-year U.S. Treasury yielded 3.0%.  On 12/31/14, the yield has dropped to 2.17%.  Since bond prices move inversely to interest rates, bond prices, despite declining in the fall, increased year-over-year.

Looking ahead for bonds, we anticipate a more challenging year.  Rising yields are a matter of when, not if.  It is unclear when Fed Chairwoman Janet Yellen might press the button to begin lifting rates back to more normal levels, but any upward move in yields can really hurt bond prices.  When interest rates rise, the prices of bonds drop.

One of the biggest challenges facing all bond investors, then, is constructing a portfolio that generates adequate income while minimizing interest rate risk.  Our bond approach, which we feel has proven effective for clients over the years, is to primarily to preserve principal, and then to produce good income.  That strategy stresses bonds or bond funds whose maturities are not long.  The longer the bond’s maturity, the greater the risk of principal loss when interest rates rise.  The trade-off, which we gladly accept, is that yields offered by shorter-term bonds are typically lower.

For our clients who own individual bonds, our discipline of “laddering” bond maturities is a textbook strategy for helping to insulate their principal.  Bonds maturing in consecutive years – with expiration dates no longer than 7 years, have and will prove effective in protecting principal – as well as providing the opportunity to shift into the higher yielding bonds as existing bonds mature.

Lastly, from all of us – we wish you a happy and healthy 2015 – and we will keep you informed as the year progresses.








This material is provided for informational purposes by Hall Capital Management Company. The material is not investment advice and is not a recommendation, an offer, or a solicitation of an offer, to buy or sell any security, strategy, or investment product. The views and opinions expressed in the material solely reflect the judgement of the authors, but not necessarily those of the company or any affiliates as of the date provided and are subject to change at any time. All information and data presented herein has been obtained from sources believed to be reliable and is believed to be accurate as of the time presented, but the company does not guarantee its accuracy. The information presented should not be regarded as a complete analysis of the subjects discussed. Any past results provided do not predict or indicate future performance, which may be negative.

Additional information, including management fees and expenses, is provided on Hall Capital’s Form ADV Part 2. Past performance is not a guarantee of future results.