2016 Year In Review
By Tyler Durden
Authored by Scott Kristoff via Avondale Asset Management,
We started this year with the economy deteriorating and finished it with the second interest rate increase in ten years. There were a lot of ups and downs along the way, but ultimately 2016 was defined by three key story-lines: 1) Brexit 2) The Presidential Election 3) Fed Policy.
The first two events were votes that shocked the world. The stock market’s reaction to each was arguably even more shocking. If someone had told you in January that Britain would vote to leave the EU and Donald Trump would be president,would you have ever guessed that the Dow would be poised to break 20,000? Some people view this as a lesson in the unpredictability of markets. I would argue that the full story just hasn’t been written yet. These were major political changes that are likely to have enduring effects on the global economy.
In terms of Fed policy, there were two key moments during the year. The first was in February when the stock market’s decline caused the Fed to change its outlook that it would raise rates twice in 2016. That helped spur the market’s rebound. The second key moment was in June. The markets had fully recovered by then but that’s when Janet Yellen began to adopt a philosophy that “neutral rates” were going to be low for a long time. This shift in philosophy is probably the reason that we only saw one rate increase this year.
Happy Holidays!
The year began with the industrial economy deteriorating
“The environment continued to deteriorate as expected. The root causes for the slowdown remain the same. The rapid and sustained drop in oil prices, the strong U.S. dollar with its negative effect on export demand, and foreign exchange headwinds, are all negatively impacting broader manufacturing activity.” —MSC Industrial Direct CEO Erik Gershwind (Distributor)
But the consumer was still holding up
“Our holiday sales results were solid…We started off strong as we said at the third quarter announcement, but our performance continued to become stronger and stronger closer to the end of the holiday.” —Signet Jewelers CEO Mark Light (Jewelry)
Jamie Dimon emphasized that he did not see signs of recession
“We’re not forecasting a recession. We think the U.S. economy looks pretty good at this point…obviously, market turmoil we all look at it every day but I’m not sure most of the 143 million Americans look at it that much who have jobs and you have a big change in the world out there. People are getting adjusted to China slowing down…hopefully this will all settle down. It’s not the beginning of something really bad.” —JP Morgan CEO Jamie Dimon (Bank)
But a “psychological movement towards caution” was spreading as the stock market fell
“we’re seeing a little bit of a slowdown, or a psychological movement towards caution – that’s definitely happening, and that translates into maybe a little more down, in fact, …read more
Source: 2016 Year In Review
