ycharts). So 2016 confirmed my optimism again (driveby ).
As expected the selling panic from January/February was short lived (conflicting-signals). The temporary losses were caused by the gloomy sentiment and aggressive herding behavior. Hedge funds and other speculators were betting on a weakening US economy & an alleged crash in China. But the news from the economic front didn`t confirm the pessimism. Quite contrary, the global economy got healthier over the course of the year and the stock market followed (rally).
I believe that the bull market, that started Spring 2009, will continue this year - even if the Fed will hike her interest rates three times as she has already 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 in this year and the following. 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. If Trump doesn`t start a trade war with China (here my analysis ) he might give the economy an additional boost by reducing taxes & regulation and infrastructure investments.
Many had missed the rally and are still sitting on cash & bonds. They might get inspired by the growing economic confidence and may come back to the stock market (businessinsider ). Their purchases could be an additional driver for the ongoing stock market rally.
Happy New Year!