We wanted to provide you with a quick review of the 2016 market. These comments are also available in our annual market review video.
Despite many challenges, stocks closed 2016 on a positive note.
Among the indexes, the small-caps of the Russell 2000 led the way, finishing nearly 20% ahead of where they started. These were followed by the large-cap DOW and S&P 500 indexes, the technology heavy NASDAQ, and Global Stocks.
A brief look back shows how the year evolved:
Stocks kicked off 2016 with a dramatic slump, in response to dropping oil prices and concerns over China’s struggling economy and stock market. But by the end of the first quarter, investors seemed to shake off their fears.
Anxiety returned again in June, as British citizens voted to leave the European Union, and yet again in October as American voters grew worried about the increasingly tumultuous presidential election. However, November’s election results seemed to reassure investors, and as year-end approached, several indexes were in record territory. Even the December rate hike by the Federal Reserve board did little to dampen the market.
The bond market also experienced volatility, as prices on the 10-year treasury rose during the first half of the year while the stock market slumped. As the economy gained steam however yields rose by almost a whole percentage point in Q4, the largest quarterly gain since 1994.
In other markets, oil prices rebounded, from below $30 dollars in Q1, to close the year at about $54 per barrel. The dollar remained strong throughout the year, affecting both imports and exports, and gold increased 8.5% over 2015, although most of its gains occurred during the first half.
So what moved the markets last year? Jobs saw solid growth, with new jobs averaging 180,000 per month. The unemployment rate ended the year at 4.6%, below 2015’s closing rate of 5%. Gross Domestic Product picked up steam throughout the year, rising from less than 1% in Q1 to 3.5% in Q3. Inflation remained below the Fed’s target rate of 2%, although some observers seemed to indicate that it, too, may be picking up steam. Disposable personal income and consumer spending both rose. Housing remained strong, as both sales and prices of existing homes were up as of November. Manufacturing was sluggish through the year, though this sector may warrant particular attention as the new administration strives to make a positive impact. Finally, as noted previously, the fed acted to slow some of the economic momentum by raising interest rates in December.
As for what lies ahead, no one can say for sure, but several factors bear watching. Will the Fed continue to raise rates as expected? Will President Trump and a Republican-controlled congress enact policies that will increase growth? And finally, will the stock market continue its positive growth?
For thoughts on these and other questions and how they may affect your portfolio, be sure to contact your investment professional.