Looking back on 2016December 22nd, 2016 by Scott Spiering
Looking back on 2016, I’d have to say it was a year full of surprises. The biggest, of course, was the news in November that Donald Trump won the election as the 45th president of the United States. If that wasn’t unexpected enough, the market response after the election was an overwhelming surprise. As stocks rallied and bonds sold off, we, as investors, experienced a generally positive result from the election, which was contrary to most predictions.
As I am sure you are aware, the election has created mixed sentiment in both political parties. There are still many questions that consume the headlines and as we look ahead to the next year, there is some risk regarding the differences between what Trump the candidate said, and what the future President can or will accomplish. However, among the uncertainty, we can identify two positive outlooks. First, as the gridlock in Washington has become almost unbearably normal, the vision of a united Republican Congress and a Republican President brings hope that the political risk of a divided government will be reduced. Second, the President-Elect’s proposed reforms, which include reducing the corporate tax rate and consumer taxes, decreasing regulation, and increasing government infrastructure spending, appear to be attainable. These reforms are all focused on boosting economic growth and as a result should have a positive result on equities in general.
Outside of the election, our eyes were on the actions of The Federal Reserve. As expected, The Fed raised short-term interest rates this December. This is only the second time in the past eight years. The reaction to the rate hike and increased expectations for three rate increases next year, alert us to reduce the maturities in the fixed-income portion of your portfolios. While we don’t expect this to occur rapidly, we are preparing for the effects of higher rates (lower bond prices) by shortening the maturities as appropriate.
Apart from the risks of political policies and any related volatility, solid fundamentals and improving consumer confidence indicate that we may be entering a period of faster growth. Optimism is justified, however we are also aware that with a period of faster growth, there also comes a bit of overconfidence. As always, we maintain a system to reduce emotional miscalculations. A well-diversified portfolio structured around meeting your cash-flow requirements combined with re-balancing to the equity and fixed income allocation that aligns with your risk comfort zone and your time horizon offers the best probability to meet your financial goals.
As we close out the year, we offer our sincerest gratitude for your partnership with us in 2016 and would like to reiterate our commitment of integrity, prudence, and service to you in a prosperous 2017!