The Year in Review: 2016 Market Summary

It’s difficult to predict the market over the short term, and 2016 has proven that point. Here are a few things that surprised the markets this year.

Interest rates remain mainly unchanged for the year. In December 2015 the Fed increased interest rates for the first time in 9 years, and indicated plans to raise rates slowly in 2016. Due to concerns about less than robust economic growth, rates have remained at historic lows. Only post-election have interest rate sensitive sectors moved in  response to anticipated rate increases in 2017. Late year rising bond yields during the quarter resulted in outright declines in bond-proxy sectors, such as utilities, staples, and real estate.

In 2015 the China stock market declined, setting off global market declines and a return to volatility, but by late year that was all behind  us – or so we thought.  2016 started with another steep sell-off in the Chinese stock market which in turn caused global markets to sell off.

World markets also tumbled after the United Kingdom voted to leave the European Union. Investors lost more than the equivalent of 2 trillion United States dollars on June 24, 2016, making this day the worst single day drop in history according to data from S&P Global. The losses were extended to a combined total of the equivalent of 3 trillion dollars by additional selling on June 27, 2016, also according to data from S&P Global. Fortunately, that sell-off was short lived, and within a few days US investors surmised the Brexit was more of a political challenge for the UK, and not a global economic challenge. 

In spite of less than robust economic growth the broad market indices ended the year higher, with the Dow up 13.5%, and S&P 500 up just under 10% for the year, thanks to a post-election rally. Before the presidential election, Wall Street dreaded Donald Trump as a dangerous,  unpredictable and disruptive, if improbable, president. Since his victory, fear has 
turned to hope. Stock markets are at record highs and shares in financial institutions
have been among the best performers. 
 
With the Republicans taking control of the White House and Congress on election night, fossil fuel stocks have since outperformed the S&P 500 (even before the  bullish OPEC production cut announced Nov. 30th); renewables and yield related holdings have underperformed; and Health Care Facilities & Medicaid levered  Managed Care have also underperformed. Additionally, infrastructure stocks and Aerospace & Defense stocks have outperformed.
 
Hopes are that with the incoming administration, the U.S. economy might be able to break out of our unimpressive but steady economic growth. While the range of likely stock market outcomes seems wider under a Trump presidency, you must keep in mind the market is not immune to systemic shocks, nor the natural fluctuations of the business or credit cycles.
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Posted by Lineweaver Financial Group in 1st Quarter, Newsletter, Market Review, 2016 Market, Market Update

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