2016 was a year of startling and alarming news stories. Many of them had a direct and not always happy effect on the stock market in 2016. While it’s not always possible to guess the next big news event or how exactly it might affect investments, it is possible to do some strategizing in advance to protect investments from serious blows. For example, 2016 was a year of international elections. Probably the most closely watched one and the most influential one in terms of its effect on global stock markets, was the United States’ Presidential race. Normally in an American presidential election year, the country’s stock market and dollar remain very stable if an incumbent is running. That wasn’t the case in 2016. Its election featured two high unpopular candidates, one of whom was also very controversial. However, while it may have seemed as though the U.S. dollar’s (USD) stock market performance may have been affected by the push and pull of this year’s candidates, it was actually affected by- the stock market performance of the previous year. That’s right. Although according to the media every sneeze, blink, and Twitter post of the new president caused stocks and USD strength to plunge or rise, those effects are really very short term. Real effects on the stock market post-administration change probably won’t truly be felt until late 2017 or 2018. So in a nutshell, if you want to be the Amazing Kreskin in regards to trading in an election year, ignore the candidates. Ignore the candidate who wins. But keep an eye on the actual economic climate going back to the previous year.
So In 2015….
Stock market analysts weren’t exactly cheery at the beginning of 2016. Some were predicting a market crash similar or even worse to the one that kicked off the Great Recession at the start of this century. Why? Things certainly didn’t get off to a bad start in 2015. Share prices were climbing. But-
- those share prices were overvalued
- there were a lot of junk bonds floating around on the market
- global stocks took “rollercoaster” rides due to China’s economic woes
- the Federal Reserve offered artificially low interest rates
Add to this the suspicion that many companies were creating a “market mirage”-that they were actually buying up their own stock to create the illusion that they were profitable. More than one stock market expert thundered that the USD would tank in 2016, and that a 2016 stock market crash of Biblical proportions was coming. Many of them recommended “shorting” investments, creating hedge funds, and stocking up on cash, especially in the form of precious metals, such as silver and gold.
How Did The USD Do On The Stock Market In 2016?
Well, it wasn’t turned into a pillar of salt. Or bothered by plagues of boils and locusts. But the USD got off to a very poor start in January of 2016. Nervous traders unloaded poorly performing investments in a frenzy of selling. And by early February of 2016 the stock market was a bear one, the most bearish one since the Great Recession, in fact. While the market saved itself from a February fiasco at the last minute-“fear works better than greed” said one analyst- problems plagued the American dollar for the remainder of the year on the stock market. These included:
Their plunge was great for everyday drivers, not so much for American petroleum companies.
2. Energy Companies
Several American ones either found themselves in dire financial straits or had to declare bankruptcy.
The market and the health of the USD so unnerved investors that even high-tech sweethearts like Amazon and Tesla had bad years.
The stock market woes of 2016 are expected to haunt the USD in 2017 as well, and presidential pronouncements about trade tariffs, immigration, and the like aren’t expected to help. Investment experts are suggesting an increase in bond buying as a result, and investment options in nations with strong central banking policies.