2016 had its ups and downs, news stories and mini-panics, and still managed to provide stock investors with a healthy return on their investment.
The chart below highlights the most significant events of 2016 and their impact on the broad US stock market. I use the Russell 3000 as a proxy for “the market” because it contains both small and large companies in the US.
We started the year with “The Worst First Six Weeks in Stock Market History (!!!).” From its close on the last trading day of 2015, the Russell 3000 declined over 11.5% through February 11. The only obvious culprit for this market decline (other than plain old investor emotion and irrationality) was a panic over the price of oil, which had been in free fall for over a year.
Oil is a major sector of the American economy and it was easy for investors to become worried about the impact a struggling oil industry may have on their investment portfolios. The media and investors seemingly forgot the positive side of a low price of oil – it is nothing short of a windfall for companies whose primary expenses include fuel – airlines for example. But why focus on the positive side side of the situation when the negative provides such scary headlines!
Oil recorded its low of $26.21 a barrel on February 11, down from around $107 in June 2014. When oil turned, it took the broad stock market with it. By the end of March the Russell 3000 had risen more than enough to completely recover from the previous six-week decline and was suddenly in positive territory for the year.
The market would only be calm for a couple months before the media and investors found the next trendy thing to be worried about: the infamous “Brexit”. The media made sure to create plenty of anxiety about this decision, but assured everyone that there was no way that Great Britain would leave the European Union. Then shockingly, the people of Great Britain voted to leave the European Union by a significant majority. The market hates surprises like this, and quickly tanked over five and half percent over the next two days.
Apparently it only took these two days before investors collectively came to their senses and realized that once again they had panicked about something that wasn’t likely to have a large impact on their investments. The market turned right back around, almost completely recovered from the “Brexit” decline in a matter of days, and went on to make new all-time highs within a couple of weeks.
Last but not least we were treated to the emotion and uncertainty of a particularly “exciting” (I supposed that’s the nicest way of putting it) election season that culminated in a mini-panic on election night. As it became increasingly clear that Donald Trump would be the next president, futures on the Dow Jones Industrial Average went down close to 800 points (-4.5%) at their lowest. By dawn the panic was over, the market even went up the next day.
As I write this in the last week of December the market is higher than it was going into all three of the events I mentioned. Once again, those who had the faith, patience, and discipline to stick to their investments in the great companies of the world were rewarded.
Disclaimer: Data shown is the Russell 3000 daily closing price from January 4, 2016 – December 23, 2016. Past performance is not indicative of future results. Performance of indices shown is for illustrative purposes only; indices are not available for direct investment.