2016 Year End Report

You know you’re deep into a longstanding bull market when you see things like average pedestrians keeping one eye on the market tickers outside of brokerage houses to see when the Dow Jones Industrial Average has finally breached the 20,000 mark.  Who would have imagined record market highs at this point last year, when the indices ended the year in negative territory?  Or when new year 2016 got off to such a rocky start, tumbling 10% in the first two weeks—the worst start to a year since 1930?

The markets eventually bottomed in mid-February and began a long, slow recovery, turning positive by the end of March, suffering a setback when the U.K. decided to leave the Eurozone and endured another hard bump right after the elections.  In the end, we were disappointed; the Dow finished at 19,762.60 for the year—but the bull market has continued for another year.

In the bond markets, it’s possible that the decades-long bull market—which basically means declining interest rates—has ended, and the fixed-income world is experiencing rate rises.  But despite the nudge by the Federal Reserve Board, the moves have not exactly been dramatic.

It is helpful to remember that we are entering the ninth year of economic expansion, making this the fourth longest since 1900.  In addition, growth has not exactly been robust; the U.S. GDP has averaged just 2.1% yearly increases since the Great Recession, making this the most sluggish of all post-World War II expansions.

The new President-elect wants to accelerate America’s economic growth, but the policy prescription has not always been clear.  Will we rip up longstanding trade agreements, cut back on immigration quotas and deport millions of workers who crossed the border without a visa?  Will there be a wall built between the U.S. and Mexico?  Will the government pay for huge infrastructure projects, at the same time reducing taxes and thus raising the national debt?  Will Congress raise the debt ceiling without protest if that happens?  Will the Fed raise rates more aggressively in the coming year, or cooperate with the President-elect in his efforts to drive the economy into a faster lane?

What we have learned over the past few years is that the markets have a way of surprising us, and that trying to time the market, and get out in anticipation of a downturn, is a loser’s game.  At the county fair, when we get on the roller coaster, we don’t bail out and jump over the side at some scary point on the track; we hang on for the ride.  The history of the markets has been a general upward trend that benefits long-term investors, and looking out over the long-term, that (and a few hard bumps along the way) is probably the best outcome to expect.

Categories: Important Updates

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Scott Carlson