Away from oil, monetary policy makers stirred the pot in their own right, while another round Greek drama and other factors also loomed large over the course of the year.
Here’s a look at the events that dominated financial markets in 2015.
The first major event to send shock waves through financial markets in the new year happened in Switzerland, on Jan. 15. Without warning, the country’s central bank abandoned a cap limiting the value of the Swiss franc against the euro.
Swiss central-bank shocker: It’s a ‘tsunami’; it’s a ‘bombshell’
Opinion: Swiss surprise exposes eurozone vulnerability
After sliding into the $40s in early 2015, crude oil gained back some lost ground by summer, reclaiming the $60-a-barrel level. But as supply kept coming and demand remained sluggish, prices saw renewed pressure. The Organization of the Petroleum Exporting Countries for the second year in a row refused to limit production. Oil futures are looking at a nearly 33% loss in 2015, and that’s on top of a 50% loss in 2014.
Greece’s never-ending financial crisis loomed large after the left-wing party Syriza came to power in January elections on a pledge to stand up to their mostly western European creditors and their demands for more austerity.
After a monthslong standoff, Greek Prime Minister Alexis Tsipras largely agreed to creditors’ demands in July, restoring calm to European markets. Tsipras subsequently called a snap election, winning again in September.
China devalued its yuan currency on Aug. 11, with Chinese regulators indicating the move was a bid to see the exchange rate better reflect market forces. But the real reason may have to do with falling exports. A weaker, more market-oriented yuan would benefit China’s economy. Also, making the yuan more responsive to market forces was seen as a factor that helped the currency gain entry to the International Monetary Fund’s Special Drawing Rights basket.
Here are 5 big losers from China’s yuan devaluation
Investors world-wide took the yuan devaluation as a sign that China’s economy is doing worse than thought. Risky assets, especially equities, quickly sold off. The S&P 500 SPX, +1.42% fell more than 12% from peak to trough in the span of a week — the first correction of this size in four years.
After being under pressure for days, U.S. stock markets collapsed shortly after the open on Aug. 24, with the Dow plunging more than 1,000 points. The main indexes recovered some of the losses but still finished the day down 3% to 4%. The blame fell on Wall Street’s biggest exchange-traded funds, one of which saw heavy losses of as much as 43% intraday.
Amid wild market swings in August and September, high-profile hedge-fund manager Leon Cooperman of Omega Advisors, blamed risk parity, a strategy popularized by another big hedge-fund manager.
Needless to say, risk-parity advocates, including Ray Dalio of Bridgewater Associates, took exception.
The European Central Bank also dominated headlines. The bank’s aggressive monetary stimulus —billions of dollars of bond purchases—pushed yields on a large chunk of European government bonds into negative territory.
In Germany, all maturities up to 7 years had negative yields by the end of the year.
But an expanded stimulus package announced on Dec. 2 disappointed traders and may have even undercut the credibility of the ECB and its president, Mario Draghi. Traders betting the dollar would rise further versus the euro got squeezed pretty hard. The euro jumped against the dollar and wiped out one month of losses.
Stocks sold off sharply, too. This was a symptom of overcrowded positions, rather than genuine policy response, according to analysts.
The Federal Reserve was in the news a lot throughout much of the year as it stuck to the sidelines despite signaling it was ready to raise rates sooner rather than later.
Inaction in June and September wrong-footed some traders.
But then, in December, it finally raised its benchmark interest rate by a quarter percentage point. The Fed primed the market for the hike so much that the reaction was positive and not too wild. Though, a few days after the Fed decision, stock market gains were gone.
In 2015, the dollar appreciated somewhat, but it was the currency’s wild swings that made headlines as traders focused on the diverging monetary policy paths signaled by the ECB and Fed.
Junk bonds made really scary headlines when Third Avenue Focused Credit closed down its fund amid flood of redemptions. The iShares iBoxx High Yield Corporate Bond fund quickly nose-dived, and was down 12% year to date.
The news spooked investors who pulled more money out of bond funds. The week ended last Wednesday saw the biggest outflow from bond funds since June 2013, to the tune of $13.1 billion, most of them from junk bonds, said Bank of America Merrill Lynch in a weekly report.
Junk bonds will probably stay in focus in 2016.
Here’s one expert’s takeaway for investors as the bloodbath intensifies for junk bonds