Well, it's been quite a year and though we're not quite ready to close the book on 2016, it already goes down as one for the record books. Not so much in terms of record performance, though the TSX is having a great year buoyed by surging commodity prices. Rather, it is how the returns have been generated. The year started with a massive sell-off, with equities declining 20% in the first 2 months of this year -the worst start for equity markets since the start of equity markets.
March to May could be called the doldrums where markets traded sideways, with a slight upward trend. Nothing much to write home about. June showed promise, with gains coming right up to the first of two surprises this year: Brexit. The Leave vote by 52% of voters sent markets down 10% in 3 trading days, before rallying back sharply. By September, other than the resource-heavy TSX, global equities were basically flat on the year.
October showed some promise with modest gains and an overall improving trend. Still, the benchmark MSCI World Equity Index was mostly flat, with gains from North American markets offset by declines in Europe. Then came surprise number two: President-Elect Trump. Some are still in shock, but his pledge to introduce a massive across-the-board tax cut, coupled with the repatriation of trillion of dollars of U.S. Corporate profits sitting off shore, has sparked a rally in North American equities. The Dow Jones has gained over 1400 points or 8% -exactly the opposite of what expected would happen.
So here we are with less than 2 weeks to go. Will the rally continue? We can't be sure, but we can be sure of this: Markets move in anticipation of what they think is coming next. In other words, they go to where they think the puck is going, not to where it's been. Enough investors are of the view that Trump will follow through on his commitments that add up to what his signature Red Hat said - Make America Great Again. Time will tell if that comes true. In the meanwhile, our equity portfolios are participating in some of these unexpected upside gains, while hedging against the opposite outcome. Stocks are expensive and we are cautious above the prospect for the sustainability of this Bull Market Run. Enjoy it while it lasts though, but be realistic too. Stay tuned, there's 14 more days left in the year.