The Biggest Financial Stories of 2015

If you were to check the financial markets right now, you'd think that nothing happened in 2015. As of this writing, the yield on the bellwether 10-year Treasury bond sits almost exactly where it started the year. The S&P 500 is about 1% above where it was on New Year's Eve 2014.

Yet, the year was a simmering cauldron of new and significant developments--some good, some bad. More than likely, the year will end better for the economy and investors than it began.

Let's start with one of the most significant changes, which is the tumbling price of oil. A barrel of oil cost $53.45 at the start of 2015, nearly half its 2014 high. At this writing, oil is breaking below $40.00 a barrel, thanks to enormous production by both the United States and Saudi Arabia. Slowdowns in Europe and emerging markets have decreased demand at the same time.

For most of the U.S. population, this means strikingly low gas prices--on average, $2.04 a gallon, down from $2.76 a year earlier and an all-time high of $4.11 per gallon on July 17, 2008. "We anticipate that two thirds of all stations will have gasoline available for less than $2.00 a gallon as the Christmas season progresses," says Tom Kloza, global head of energy analysis for the Oil Price Information Service.

In the 40 days before Christmas alone, drivers will have about $8.22 billion more in their pockets than they did the same time last year, Kloza estimates. Compared with the most expensive holiday season, 2013, the savings is $16.2 billion.

Drivers aren't the only beneficiaries. People who heat with natural gas and fuel oil will see significant savings this winter as well. And someday--perhaps--airline passengers will get a break as well. Jet-fuel prices fell to $1.39 a gallon in October, versus $2.30 a gallon a year earlier.

The flip side--there's always a flip side--is the carnage in the energy sector. Energy-equity funds have fallen more than 17% in 2015, and energy master limited partnership funds have plunged nearly 30%. Some companies were hit particularly hard:

But the real harm to the economy is from the damage to those who work in the energy sector. Management of oil-services giant

The next significant development: a gradually tightening labor market. The unemployment rate has been falling since its postrecession peak of 10% in October 2009, and it has taken its sweet time--falling to 5% in its most recent reading. But the fall from 5.7% at the start of the year to 5% now is significant, because it starts to hit the lower bound of what economists call the level of noninflationary growth. Naturally, economists don't agree on just what that level is, although the general rule of thumb has been 5%--where we are now.

They don't ring a bell when the economy is growing fast enough to spark inflation. And other measures of employment aren't as rosy. The U-6 unemployment rate, which includes discouraged job-seekers as well as those working part time because they can't find full-time jobs, stands at 10%, down from 11.3% at the start of the year. While that's the lowest reading since May 2008, you have to bear in mind that May 2008 was in the middle of the worst recession since the Great Depression. (The low point for U-6 in the previous recovery was 7.9% in December 2006.)

A tighter labor market is problematic for companies that rely on a large, low-paid workforce. The stock of

That brings us to the final big development of 2015, which is the likelihood of the Federal Reserve raising interest rates this month. The Fed has a dual mandate, which is to promote economic growth and prevent excessive inflation. As the economy approaches full employment, the Fed is free to push short-term interest rates higher--if only to have some ammunition for the next recession.

This, too, has been a long time coming: The Fed pushed the fed-funds rate to near zero in December 2008 and launched three extraordinary bond-buying programs, called quantitative easing, to keep long-term rates lower and stimulate the economy.

The Fed's bond-buying programs ended in October 2014, and Fed chair Janet Yellen has all but signaled an impending rate hike on a Times Square billboard. No one should be terribly surprised that the Fed is going to raise interest rates soon, even if they don't do so in December.

But the Fed's move is an inflection point: Barring unexpected weakness, the direction of short-term interest rates is up. For long-suffering investors who have earned little more than a cold smile from their money market funds and bank CDs, this is good news. (If the Fed keeps its pledge of raising rates gradually, however, it could be a long time yet before you earn 3% on a money fund).

All other things being equal, higher interest rates here could well mean a stronger dollar. If you've ever planned on visiting Europe, now's the time to go: A strong dollar means your purchasing power increases abroad. That 5 euro latte could now cost you $5, rather than $7.

If you're invested in an international stock or bond fund, however, you could have to suffer through more subnormal returns. When the dollar rises, investments denominated in foreign currency take a haircut from currency conversion. This doesn't mean you should drop your foreign funds, because currency fluctuations are part of diversification, and many foreign markets are cheaper, relative to earnings, than U.S. stocks. But currency will be a headwind, especially as Europe continues to reduce interest rates.

Given the uncertainty over the world economy, nothing is a given for 2016. But when we look back on 2015, the plunge in oil prices, the decrease in unemployment, and the first rise in interest rates in seven years will surely stand out as the most important developments.

John Waggoner is a freelance columnist for Morningstar.com. The views expressed in this article do not necessarily reflect the views of Morningstar.com.