This economic snapshot covers 2016 with some perspective on how markets performed and why, with an outlook for the year ahead.
2016 was a dramatic year for the world’s financial markets. The year started with collapsing oil prices, fears of recession and deflation, equity markets falling sharply and investors favouring bonds and what might be termed “expensive defensives”.
By the end of the year, we had rising oil prices, renewed optimism about US growth and inflation, cyclical equities rallying, bonds selling off and defensives falling out of favour. In between we had on then off again OPEC deals, we had Brexit and we had the USA Trump victory which threw most fund managers. In summary despite all the noise and surprise political outcomes, we had a good year for diversified portfolios with positive returns recorded by a number of asset classes in 2016. This end result rewarded patient investors and masked the considerable within-year volatility.
2017 looks like being another year of volatility (the new normal) although somewhat surprisingly, forward looking expectations for asset classes have more upside room than at the beginning of 2016. This is an encouraging scenario built on economic rationale not geo political activities and market sentiment which, of course has a history of overturning expected outcomes in the short term. Snapshot comments cautiously on the outlook in the second half of this update given the interest of many readers for asset class outlooks.