2016 was a year that went from bust to boom, a Source Research “Uncommon truths” report noted. But what can be really said about the year might not be found in the current stock market performance, they say, pointing to significant dichotomies. In developing 2017 predictions there is one market call they make before releasing their full list. What underlies the year might just be found in the most popular Bloomberg news stories — and that is volatility and uncertainty.
2016 was the year of the stock market crash and rebound, following the 2015 pattern, but 2017 predictions point to a different look
2016 started with a January sell-off and then February bounce in the stock market, touching a low of 1810 on February 11, only to jump higher and end significantly in the positive column to end the year with double-digit returns – more than double original projections for the year.
The January – February sell-off and recovery would be a pattern that would materialize in the early summer in the form of the Brexit “V” bounce. These somewhat unusual market events – cross-market correlations, particularly during the Brexit bounce, were uncommon relative to historical precedent – were key features of 2016 and followed a similar pattern in the 2015 August sell-off and recovery.
“The start to the year reflected fear of economic bust but the end suggests boom is at hand,” Source authors Paul Jackson and Andras Vig noted in a December 18 report titled “2016: from bust to boom…”
But where are the market’s headed?
2017 Predictions
Volatility and uncertainty might be the only certainty in 2017
Source had a strong record predicting some of 2016 major events, including Brexit, a Trump Republican nomination victory (but they didn’t predict a victory over Clinton) as well as making the call Brazil would be a primary debt “star.”
Most of the most popular stories center around volatility, uncertainty or turmoil, the Source report highlighted. In part, this plays into one of their early 2017 predictions.
Looking at the ease with which the markets are accepting “the genius of Trump and his ability to reflate” is something that might be called into question. The “Trump rally,” Source notes, is filled with contradictions and raises questions of the long-term validity of the move.
“Each day that passes reveals yet another contradiction,” Jackson and Vig write, pointing to cabinet picks as an example. “Rather than draining the swamp, he is filling it with sharks.” The President-elect’s pledge for fiscal stimulus is contrasted with his appointment of Mick Mulvaney, a well-known deficit hawk, as Director of the Office of Budget and Management. The incongruencies between Trump’s verbal campaign pledges and his appointments isn’t squaring, much like his tweet’s over the China drone incident where he initially expressed dismay if not a degree of outrage and then said China should keep the drone. Source is having difficulty squaring the dichotomies. “How long before markets realize the chart is upside down?”
In terms of predicting 2017 events, it looks like it might be a year of “improbable possibilities” becoming more possible. “At the end of the day, we don’t really know what will happen but we do know that everything has a price,” they announce in a pre-prediction research piece. “The best returns are unlikely to come from the assets that everybody is chasing but rather from those that nobody wants.”
Find the consensus direction and fade it.