Content provided by Kostya Etus, CFA, CLS Portfolio Manager
Let’s review some events that took place over the last year:
- At the end of 2015, the U.S. Federal Reserve (Fed) hiked rates for the first time in nearly 10 years (the last one was in June 2006).
- 2016 began with one of the worst market starts in history, and a second correction (loss of more than 10%) in less than six months (the first was in August 2015, and that was the first correction since 2011).
- About mid-year, Great Britain unexpectedly voted to break away from the European Union (EU), a move termed “Brexit.”
- Later in the year, a political novice, Donald Trump, was unexpectedly voted as the next president of the United States.
- To finish off the year, all eyes and ears were on the Fed and expectations were confirmed with a second rate hike.
Considering all of this volatility, you might think financial markets had a terrible year. But take a look at 2016 performance of the most common broad asset classes:
All markets are up! And some by a lot. How can this be with all of 2016’s surprises?
- The rate increase last year, as well as those expected this year, are actually good signs for the economy as they signal the Fed’s confidence in economic strength. So investors shouldn’t get too worked up about future hikes.
- Keep in mind, historically the market experiences about one correction every year, so the corrections experienced in 2015 and 2016 are not out of the ordinary.
- While markets dropped slightly following Brexit, they quickly recovered and volatility reached historically low levels in a matter of weeks.
- While markets dropped pre-open following the Trump election, they rallied through the end of the year, reaching all-time highs in the U.S.
So now comes the hard part. Coming up with just one reason to add to our “91 Reasons Why People Did NOT Invest in the Stock Market” marketing piece for 2016!