PETER DOLEZAL: 2016 saw the financial markets on steroids

Every indicator seemed to portend a very negative outlook for the year.

With 2016 now history, many investors can not only cheer, but also take lessons from a thorough look back on the year. The chief lesson, once again, is the absolute unpredictability of financial markets in any year, no matter how legions of pundits would have us believe otherwise.

2016 opened with a continuation of the largely-negative market performance of 2015, giving investors little encouragement for a positive outlook.

By February, oil had dropped below $30 a barrel, a new low.

The Canadian dollar, the TSX, the U.S., and world markets followed suit.

Acts of terrorism, the Middle East strife, and its refugee crisis, continued to destabilize Europe and the world.

In Canada, consumer-debt levels rose and a bulging real estate bubble threatened to erupt, particularly in the torrid markets of Toronto and Vancouver.

Every indicator seemed to portend a very negative outlook for the year.

Many investors, seeking greater portfolio protection, reduced their equity stakes in favour of cash or bonds.

Then came Brexit, with the U.K. shocking the world by voting to leave the European Union.

The pound plummeted; Europe reeled, as did financial markets worried about the unknown consequences.

An even greater shock followed — the totally unexpected election of Donald Trump as President of the U.S. Prior to voting day, pundits had predicted that were Trump elected, financial markets would collapse overnight — by 10 per cent or more.

How did 2016 end?

Startlingly, not at all as the year’s signals would have had us expect.

North American markets in particular, delivered a sterling performance across the board:

• By year-end, the price of oil had climbed to the U.S. $50/barrel mark; more importantly, it had stabilized in that range.

• The Canadian Federal, and B.C.’s provincial, governments combined to introduce aggressive measures to toughen mortgage qualification, and to tax non-resident buyers of Vancouver’s homes. Vancouver real estate markets all but collapsed overnight — particularly in the over-$1 million price range.

• Far from their predicted collapse after Trump’s election in early November, U.S. financial markets rocketed upward by about nine per cent.

• In Canada, the TSX Index grew by 17.51 per cent, its best performance in many years — outperforming U.S. markets for the first time in six years.

• In the U.S., the S&P 500 Index added 9.54 per cent for the year; Dow Jones Industrials added 13.42 per cent; and the Nasdaq Index, 7.50 per cent.

• In local currencies, the U.K Index rose 14.2 per cent; Europe’s increased 4 per cent; and Emerging Markets, 7.1 per cent.

• The “All Country”, or “World” Index, measured in local currencies, delivered a respectable 6.8 per cent for the year.

• By year-end, as U.S. interest rates increased and Trump’s inflationary agenda was factored in, investors were fleeing bonds and bond funds, in favour of equities.

Once again, the prudent investor who stayed invested throughout 2016, with a geographically-diversified portfolio, low holding costs, and assured dividends — balanced across all equity markets, ended the year very happy.

Much less so, were those who overreacted, jumping in and out of equities in response to unfolding events.

The clear lesson?

No one can predict future events, let alone market reactions and outcomes — nor should one try.

Rather, the focus should be to ensure that one’s investing strategy is sound — designed to successfully weather inevitable market surprises and short-term fluctuations, to successful long-term results.

 

 

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his Second Edition of The SMART CANADIAN WEALTH-BUILDER.

 

Contact Panorama Rec Centre to register for Peter’s Elder College Spring session – Financial & Investment Planning for Retirees & Near-Retirees (Wednesday mornings; March 15 to April 12).

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