We are in nearing the final month of 2016 and it’s been a year that has made some significant changes in the market entirely. The first consequential shock of the year started with Brexit, which offered an unprecedented battering for the global markets to handle. Just as we thought the market was just recovering from the hangover of Brexit, uncertainty and volatility hit again with the U.S. Presidential elections and Donald Trump coming into power. As we move in the last month of 2016, let’s have a look at how all the assets have been performing throughout the year:
A year can make a huge difference and the commodities market is a proof of that. In the year-end review of 2015, it was all doom and gloom for the commodities sector as it faced one of its worst nightmares, with metals, energy and agriculture sectors suffering with average year-to-date losses of -23.8% against the average gain of 6.6%. But, in 2016, the commodities sector was once again in favor among investors. In comparing returns across various commodity sectors against traditional asset classes such as equities, not only is every commodity sector in the black, they are outperforming traditional asset classes. Zooming into the performance of individual commodities, Brent, WTI, silver and zinc came up top, each of them making gains of over 25% since the beginning of the year:
Thomson Reuters also notes that while these sectors have been outperforming, there is still a long way to go before they recoup their sharp longer-term losses, while precious metals complex had a strong start to the year, with gold benefiting from easing expectations on a Fed interest rate increase and the recent Brexit referendum results.
Potential negative impact
Commodity producers are finding it rather easy because of the higher prices. In a market that is having steel, iron ore, aluminium in abundance, higher prices are making the producers more reluctant on trimming production. This in turn will only make overcapacity in commodities persist, especially in the case of China, where much of the problem lies. And looking at this, one can think that the current method may create more market imbalances because of higher prices. And if this theory holds, the prices may correct with time or the commodities sector can be trapped in a ‘lower for longer scenario’ like it had faced in the past years.
There can be various assumptions made, but one thing that can be noted is that maybe that strong price performance might be exactly what the market needs by commodity-producing countries, out of which many are even developing countries that can benefit by balancing their deficits. This can stimulate demand growth if it can flow down to the economy. As reported by Thomson Reuters, “Fears of hard landing in China appear to have waned. Whether the rally is a mirage, or a shot in the arm to kick-start the economy depends on producers’ discipline and commodity producing nations’ ability to capitalise on this opportunity.”
Equities and Indices
Over the last few years, fast growing technologies have been a hot stocks as well as winning trades and coming into 2016, many investors thought that the best illustrated (Top 4) FANG (Facebook, Amazon, Netflix, and Google) stocks would slow down, if not derail. But ever since the Brexit scare that has pulled the market back, returns have reversed to say the least. Stocks that were barely growing or selling such as those in the utilities sector came back into popularity as dividend yield became the hottest trade in the market amid the market’s speculation of the Fed’s (in)decision on raising interest rates.
Following the effects of Brexit and U.S. Presidential elections, there was expected to be a lot of disarray in a market that was expected to fall by large means, but surprisingly the dollar has strengthened and since bottoming in March 2009, the NASDAQ has soared more than 250% and the NYSE is up 130%, while the S&P 500 has gained 182% and the 30-company-strong Dow Jones Industrial Average is up more than 145%. As of current moment, the banks are performing well, infrastructure industries are having an overwhelming response and as mentioned above, S&P as well as Dow are at an all time high with the greenback being so strong.
It’s been a year full of positives for Bitcoin looking at the radical increase in price from the beginning of the year. Starting at a mere rate of just $434.5, the bitcoin price at the time of writing is $741.5 which is more than a 75% increase. The increase can be seen as an expected issue mainly because of the ongoing volatilities in the market. People have been looking for assets that they can trust and bitcoin has been their go-to option in 2016. With countries such as India that demonetized their top currency bills and various currencies losing their value with the dollar strengthening, a lot of people have invested in Bitcoins and blockchain looking at it as a major investment of the future. The increase in a single year talks a lot about its future.
So, with just one month to go to end off 2016, this is how the market performance stands in the past 11 months. We also talked about Goldman Sachs’ trade ideas for 2017 in our recent article looking at the current market scenario so our users can set their Call levels accordingly. While many are happy with the current market situation, there are various who are in doubt about what is yet to come. But, what are our users looking out for looking at the performance of assets in 2016? Set your Call Levels accordingly and get ready for the final month of trading in 2016.
If you want to improve returns on your equity, forex, commodity and even cyrptocurrency investments by leveraging the power of market monitoring and real-time alerts, download Call Levels: