We say it every year, but 2016 truly was a whirlwind of a year. We faced a number of surprises, from Brexit to the election to a controversial oversupply of oil, but 2016 finished off strong and 2017 looks bright.
Let’s take a look at how the end of the year is shaping up:
As we discussed in our 2016 Mid-Year Market Update, Brexit shook the markets, and there was a lot of fear among investors that global economic growth would slow substantially. While we’re still seeing some economic uncertainty, global economic growth hasn’t been significantly affected.
The UK economy grew by 0.5% in the three months after Brexit ”” 0.2% lower than the previous quarter, but 0.2% stronger than analysts’ estimates. However, the pound hasn’t entirely recovered. After declining to a three-year low against the euro, the pound has regained some ground and its rate now stands at 1.18 euros (it was 1.3 euros pre-referendum). As of December 22, 2016, the pound was work $1.23 (compared with $1,47 pre-referendum). (1)
A few months ago, there was a lot of talk about the Federal Reserve raising interest rates. Particularly since the election, when president-elect Donald Trump’s policy agenda of tax cuts and infrastructure spending pointed in the direction of higher rates, investors worried and waited in anticipation.
It wasn’t until December 14th that the Federal Reserve raised its benchmark interest rate by 0.25% for the second time since the 2008 financial crisis. (2) The reasoning was that the American economy was growing healthily in light of Trump’s push for growth. Following this decisions, U.S. mortgage rates also increased, reaching their highest level since April 2014. The average rate for a 30-year fixed mortgage jumped from 4.16% to 4.3%. (3)
One of the major questions on people’s minds this fall was how the outcome of the election would affect the stock market. November 8th was a dramatic evening in this regard. As poll results came in and a Trump win became a probability, the markets reacted wildly. The S&P 500 and Dow Jones Industrial indexes fell more than 4%.
Following the same trend, Treasury bonds also fell in value on November 8th .
However, the market quickly bounced back and, since then, all of the major U.S. indexes have witnessed record highs. Additionally, the benchmark 10-year yield rallied as high as 2.30% after election day. (4) Some of the policies that Trump has proposed could result in higher growth and inflation, which often leads to sell-offs in fixed-income assets.
Oil and Gas Inventory
There was a lot of talk about the oversupply of oil and gas due to U.S. fracking. This negatively affected countries that rely on high oil prices to keep their economy going, such as Venezuela. Recently, OPEC came to an agreement to reduce output in order to increase prices.
We will see how this plays out in the days to come, but in the meantime, oil prices rose to an 18-month high with U.S. oil futures gaining 23% at the announcement of OPEC’s news. (5) Practically, this will lead to an increase in prices at the pump, but don’t expect them to go through the roof just yet.
The U.S. Dollar
The U.S. dollar has been strengthening these last few years and is now up by 25% since 2014. Third-quarter gross domestic product rates hovered at 3.5%, which is a sign that the economy is continuing to improve. (6) On the flip side, the robust dollar can negatively affect U.S. exports and lower commodity prices and hurt companies that do business abroad.
What To Expect For 2017?
All in all, we think 2017 looks promising. We anticipate seeing continued stock market growth and consumer spending. Even with inflation expected to rise, the wage growth that is occurring will help to offset the difference. While unexpected events may occur and impact how the stock market changes, we can put plans in place now that can help us weather potential storms.
One of the best moves you can make is to focus on your personal financial goals and working toward financial freedom. We all have our own personal definition of the “RichLife,” and that should be what we work toward.
If you have questions about this market update or your own strategies, feel free to email or call me to learn more. You can reach me by calling 770.249.7424 or emailing email@example.com.