2016: A Year of Stock Market Shocks

This year has been one of upsets - Brexit, Trump and market rotations all surprised investors. So will the next 12 months be more of the same?

External Writer 7 December, 2016 | 3:02PM

Morningstar's "Perspectives" series features investment insights from third-party contributors. Here, BMO Asset Management’s multi-asset team takes a look back at the year that was 2016.

2016 will go down as a year when conventional wisdom was turned on its head. In the political arena, Prime Minister David Cameron, emboldened by the Scottish referendum, lost an even bigger gamble with the Brexit vote. Trump defeated all-comers in the Republican nomination race before confounding pollsters to take the US Presidency. In financial markets, investors determined that you can, indeed, have too much of a good thing with the response to Japanese and European policymakers’ efforts to push interest rates into negative territory.

Defensives have been Shunned

With the response function to changes in monetary policy reversed, 2016 has seen a revolt against previous winners with expensive defensives and bond proxies performing poorly and a renewed interest in cyclicality and reflationary trades. Considering the mood in the first few weeks of the year, when the focus was on the prospect of US recession, economic and financial damage from the collapse in oil prices, and the Chinese slowdown, the turn in sentiment and leadership has been extraordinary.

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