Derek how did investors do in 2016?
With the year nearly past us we can look back and take a solid look at 2016. It was a very volatile year from start to finish with many headlines pushing the markets in all directions. Investors had all sorts of reasons to worry this year and despite these concerns it is safe to say that markets moved higher.
The year started with the price of oil (West Texas Intermediate) around $37 per barrel. When the year started many felt that the price of oil was as low as it could be and that the worst was behind us. However, we were soon looking at much lower prices when in the second week of February oil nearly touched $26. In February some analysts suggested we could see oil get to $18.
The story for oil in 2016 was one with a slow steady decline in production across the globe with some positive reinforcement by OPEC and non-OPEC countries. To end the year, we now appear to have a deal whereby both OPEC and non-OPEC nations will reduce their output and ideally support the price of oil. These events have now pushed oil closer to $50 a barrel – nearly a 100% increase from the low this year and well away from a doomsday $18 estimate. While it is still well away from the highs of 2014, many assume we will now start to see better prices.
In January global markets were roiled by concerns that the Chinese economy was grinding to a sudden halt and worries about a spreading Zika virus. The Toronto Stock Exchange (TSX) started the year by dropping over 11% to 11,531 before the end of January. The US markets experienced a similar start with the Dow Jones Industrial Average and the S&P 500 down 11% in the same time frame touching 15,450 and 1,812 respectively. This was indeed a rough start to 2016 for investors.
Markets found their footing in February and did rally higher until we woke up to a surprise on June 24th to learn that the United Kingdom decided to withdraw from the European Union. Many polls showed that this likely would not happen, so the world quickly adjusted to this reality. Markets reacted accordingly. US markets dropped over 5% in the next two days. Despite this shock, investors were resilient and the indexes were back on track within two weeks as the impact of Brexit likely won’t be seen for years, if at all.
Finally, the US election year had many investors either sitting on the sidelines, or placing their bets for a Clinton victory. As we all know today, few polls showed Trump winning the presidency and the markets were moving according to that consideration.
During the night of the election numbers continued to flow in Trump’s favour eventually paving the way to his ultimate win; at the same time the markets were pushing dramatically lower. Again, we were surprised to wake up to an election result that no one saw coming. However, US markets were resilient and moved higher across the board as many saw Trump’s policies as favourable to various industries and sectors. This, among other factors, has since led the markets on an extended rally and pushed US markets to all-time highs.
Looking to today, the TSX is over 15,000, the Dow is at all-time highs over 19,000 and the S&P 500 is nearly at 2,300. These rallies were not without volatility, but investors who did not over react to these market drops are now likely sitting on healthy gains from that same time. A long-term focus served these investors best.
The message here is that the markets will always have a reason to be volatile. This volatility will be brought upon by elections, wars, currency manipulation, or any other number of possible events. Predicting these events accurately every time is impossible so generally the best strategy for investors is to determine whether the positions they are invested in will benefit them in the long-run. If the reason you invested in a particular way has changed, perhaps it’s time to change your portfolio. As always, ensure your strategy is sound, and focus on the years ahead rather than on the headline today.
From my family to yours, all the best this holiday season and I hope you have a fruitful 2017.