2016 has been a year of shocks but perhaps the biggest surprise is that it has turned out to be relatively positive for the stock market.
At time of writing the FTSE 100 is once again nudging the 7000 barrier, and could even hit an all-time high if the Santa rally comes to town. The Dow Jones and S&P 500 are already at record levels.
Few could have imagined this given the disastrous start to the year, which saw markets crash the moment they opened.
In China, the authorities shut down the stock market after less than 15 minutes of trading, while the oil price slumped to just $26 a barrel
More than £80 billion was wiped off UK shares in the first week and the FTSE 100 dipped to a low of 5,557 in February. Briefly, it felt like the end of the world.
Let it snow
As so often happens, investors who kept their nerve were rewarded as markets sprang back to life, only to collapse again on the Brexit shock. That also felt like the end of the world for many, as did Donald Trump’s election victory.
There has been a lot of talk about “generation snowflake” but it clearly takes more than the end of the world for investors to melt away.
Having learned a hard lesson in January markets decided to look on the bright side of Brexit’s sterling meltdown and Trump’s reflation play.
The Italian referendum ‘No’ vote stoked fears of a Eurozone banking crisis and break up but once again, investors kept their cool. Markets even seem unfazed by the widely anticipated US rate interest rate hike in December.
Unless there is a sudden collapse the FTSE 100 will end the year 10 to 12 per cent higher, a more than respectable performance.
With the index currently yielding 3.8 per cent, its total annual return could near 15 per cent. So why aren’t investors celebrating?
Stock markets have been on a bull run for nearly nine years without generating the excitement we saw in the 1980s and 1990s.
Deep down, investors know it has been fuelled by near-zero interest rates and trillions in quantitative easing, while few of the underlying problems exposed by the financial crisis have been solved.
Developed world debt and demographic trajectories remain frightening. The Chinese credit and property bubble is measureless to man. Brexit means Brexit but as yet nobody knows whether that will be a hard Brexit, soft Brexit or red, white and blue Brexit. As for The Donald, we can only cross our fingers and hope it doesn’t end in a global trade war, or worse.
2016 could have been a lot messier. Even the bond bubble failed to burst, again. Now investors are resting their hopes on the president-elect’s proposed $1 trillion fiscal blitz. Donald Trump to save the world? Now that would be the biggest shock of all.