As we close the books on 2016 and reflect on the markets, last year was one of the more eventful years since the financial crisis.
While many of the equity market indices reached record levels near the end of the year, such euphoria was not always the case throughout 2016. In fact, the first five trading days of last year were the worst start in history. The markets also endured an unexpected Brexit vote and an unconventional U.S. presidential election. Domestic markets continued their divergent behavior compared to most developed markets. Small-mid-cap stocks were the biggest gainers of 2016 on beliefs that a stronger dollar and a more protective administration would be good for these companies. Overall, a globally diversified equity portfolio likely produced returns in the mid-to-upper single digits last year.
2016 proved to be a volatile year in the fixed income markets as well. Throughout the first half of the year, interest rates declined with growing economic concerns and policies by accommodative foreign central banks. The yield on the 10-year treasury hit its lowest level on record in early July. Interest rates increased during the second half of the year on improved U.S. economic activity, improving jobs market, and the growing expectation that the Fed would raise rates. Overall, interest rates were higher at the end of the year and global bond returns were more in-line with the yield environment.
Crude oil hit the lowest price since May, 2003 then rebounded 12% the next day to achieve the largest one-day jump in seven years. Gold prices rose 16% in the first quarter and hit an intra-year high of over $1350 an ounce – only to see prices fall 13% over a six week period late in the year.
Looking back in history, market volatility experienced in 2016 is considered more in-line with a normal year than the previous three calendar years. This behavior will likely persist into the New Year as expectations and valuations remain high. We would like to thank you for your confidence in Security National Bank Wealth Management, and we look forward to serving you in 2017.
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