We view this as a decent environment for U.S. equities. Multiples are higher than in recent past, but the multiples of all alternatives to equities are much higher relative to history. Relative valuation matters because capital must flow somewhere. Domestic GDP growth should continue to remain strong, but it will not be without its challenges as an appreciating U.S. dollar will pressure S&P earnings, potentially offsetting domestic growth. Global growth is anemic. While the U.S. is now focused firmly on moving rates higher, the rest of the world is either continuing its stimulus (China and Japan) or just beginning (Europe). The consensus for 2014 was that rates would move higher (which proved incorrect) and that consensus again exists for 2015. The rate on the U.S. ten-year is very appealing relative to similar sovereign bonds globally, so there remains a possibility that spreads narrow (front end of curve backs up while 10's stay put). The three things we are most confident in for 2015 are that volatility will increase, correlations will decline and that domestic revenues will possess more tailwinds than multinationals.(more)
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