Investors received this year ample presents. Yesterday the U.S. stock
market closed close to an all-time high. The S&P 500, a gauge for the U.S
stock market, gained 12.8% since last Christmas (10.8% year-to-date) and the Dow Jones almost touched the
mark of 20,000 the first time of his history. The British stock index FTSE 100 climbed 13.2% year-to-date (Brexit!) and Germany`s DAX advanced 6.6%.
The rally is a response to
a global economy which is getting stronger (driveby). The stock market also signals
growing optimism for the year 2017. I think the rally will continue next year - even if the Fed will hike her interest rates three times as projected. History shows that
stock prices & interest rates can happily rise together: The Bank of
America Merrill Lynch (finance)
notices that “the 1950s was a period of higher stock prices and higher
US interest rates. The US 10-year yield bottomed near 1.5% in late 1945
and the S&P 500 remained firmly within its secular bull market until
yields moved to 5-6% in the mid 1960s. The S&P 500 rallied 460%
over this period.”
I think we can have a similar development next year. Companies will
benefit from a growing global economy and will sell more products which
will translate into higher profits. Helpful
are the ongoing efficiency gains (due to learning & technological
advance) and the growth of the emerging markets (China, India & Co).
Therefore the profit gains will overcompensate the negative effect of
the rising interest rates and the stock market rally will continue.
Merry Christmas to everyone!