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TheQuarterlyReport
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THE INVESTOR
In a year of political twists and stock market surges,
it was the fourth quarter that stole the show
THE INVESTOR CENTRE
A
year of surprises reached
its climax in the nal
quarter, as DonaldTrump
beat overwhelming odds
to win the US presidential
election, an outcome that quickly made
itself felt on markets worldwide.The S&P
500 also enjoyed its strongest quarter
in its strongest year since the global
nancial crisis.
The‘Trump rally’ appeared to oat all
boats, although some sectors
outperformed.Campaign pledges to
deregulate energy and nance, and to
spending.AfterTrump’s victory, the yield
on the 10-yearTreasury rose from below
1.8% to nish the year at almost 2.5%
2
.
Interest rates were a major focus –
several leading central banks pushed rates
into negative territory, notably in Japan
and the eurozone.The US Federal
Reserve waited until December to make
its only rate rise of the year. Improving
economic growth, low unemployment
and a corporate earnings recovery o ered
ample justi cation. In ation reached
1.7% in December, not far o the Fed’s
2% target
3
.
The improving health of the US
economy and the election of Trump
pushed up the dollar, while in the UK
strong growth in the third quarter and a
falling pound spurred a signi cant stock
rally in the wake of the Brexit vote.The
FTSE 100 rose 14.4%
4
over the course
of 2016 to end at an all-time high.The
rising oil price o ered another tailwind
for stocks – a Russia-OPEC oil cuts deal
struck in December helped push a barrel
of Brent crude above $50
5
. In ation in
the UK rose by 1.2%
6
, but the Bank of
England said even above 2%would be
acceptable if it helped jobs and growth.
Stocks in Japan and the eurozone
enjoyed their strongest quarter at the end
of the year, as a rising dollar provided
strong support for equities – the
FTSEuro rst 300 rose almost 6%
7
and
the Nikkei 225 by more than 16%
8
.
Yet the eurozone su ered a blow in
December when Italian voters rejected
boost infrastructure spending,were taken
seriously on markets:US nancials listed
on the S&P 500 rose 20% through 2016
1
,
and prices rose for listings in the energy
and construction sectors.His
protectionist rhetoric appeared not to
have dented prices – yet.Trump’s broader
pledges to cut both income and
corporation taxes buoyed sentiment.
Perhaps dismissing his protectionist
rhetoric as campaign trail bluster,market
anxieties instead focused on debt and
in ation, both of which could rise on his
planned tax cuts and infrastructure
Fresh ruptures
Chris Ralph,
Chief Investment O cer,St.James’s Place
Masao Yamazaki