Fourth Quarter 2016 Market Letter
Once again the equity markets surprised investors, with the Standard and Poor’s
500 Stock Index rising 11.96% for the calendar year 2016. All the more surprising,
since pundits were unanimous in the opinion that a Trump election victory would
result in a sharp market decline.
Many studies have shown that attempts to time the equity markets have not proved
fruitful, as the penalty for missing the up market periods has been very difficult to
overcome. Excluding luck, the best long term equity returns have come from
remaining invested in stocks through the investment cycles. That remains our
Looking forward to 2017, the prediction that seems safe to make is “that things will
be different”. The new administration has proposed some legislation that will be
attractive to labor and its democratic constituents (trade restrictions). Proposals
have also been put forward that will be attractive to republicans (tax reform).
These proposals should lead to new coalitions in congress, as the horse trading
begins for each side to pass its favored bills. This could well lead to an end to the
sharp congressional division we have experienced. It will be interesting to watch
the story unfold.
The economy continued to show strength the last two quarters, which encouraged
the Federal Reserve to make the long awaited move to raise interest rates. The Fed
has indicated that we should expect additional rate increases this year. The
strengthening economy bodes well for the job market and provides a favorable
backdrop for the equity markets.