So farewell 2016, year of shocks, surprises and ceaseless celebrity deaths. We lost David Bowie, Prince, George Michael, Carrie Fisher, Debbie Reynolds and countless others, and were given President-elect Donald Trump and a fat dollop of Brexit uncertainty in return. Don’t assume everyone hated 2016, those who voted for Trump or Brexit will have enjoyed it very much. Investors also had fun.
Good times
Lest we forget, the year began with total meltdown. The market crashed the moment it opened as panic in China infected the world, and in mid-February the FTSE 100 hit this year’s low of 5,557. The index ended yesterday at 7,120, its all-time closing high, a trough-to-peak increase of an astonishing 28%, and a reminder of the rewards of buying shares when everybody else is selling. Over the calendar year, the FTSE 100 is up around 17%. Throw in the current 3.83% dividend yield and you have a total return of more than 20%. A much underrated investment year, 2016.
That’s one reason why I can’t wait to sink my teeth into 2017. The FTSE 100, S&P and Dow Jones are all now trading around all-time highs, and investment success whets the appetite for more. Yet I haven’t lost my head, I reckon this is going to be a tough year.
Trump bump
First, we face the reality of President Trump, not the fantasy version markets have kidded themselves they’re going to get. Bullish investors have focused on the potential positives, primarily Trump’s much-vaunted $1trn tax cut and spending blitz, which is supposed to mark an end to the age of austerity.
They’ve ignored the potential negatives, such as a disastrous return to protectionism, which might see a trade war with China and across-the-board tariffs on imports. If that happens, today’s market froth could blow off in a moment.
Mayday, Mayday
Then we have the prospect of Theresa May triggering article 50 by the end of March, to begin the two-year process of divorce from the EU. That will pile uncertainty on uncertainty, and perhaps the biggest investment cliché of all is that markets hate uncertainty.
Europe will be a source of trouble in other ways as markets wait to see whether the populist surge will continue in critical elections in the Netherlands, France and Germany. The Greek debt crisis will grind remorselessly on. Italian banking worries could flare up. Anything could happen.
Interesting times
From a political point of view, all of this is worrying, potentially harrowing. From an investment point of view, not so much. I wrote recently that I’ve shunned the Santa rally, because I don’t like investing in markets when they’re touching all-time highs. I prefer the type of buying opportunity we saw last January and February, when top companies and benchmark indices are on sale at massive discounts.
When the inevitable volatility strikes, I will go shopping for more shares to top up my portfolio. I don’t plan to touch the money for 15 to 20 years, so can withstand short-term market swings, and even turn them to my advantage. I hope you can too. Happy New Year, whatever it brings.