A Year in Review: Wild Ride for Global Markets in 2016Posted on — Leave a comment
There’s no question that 2016 has been one of the most interesting and surprising years for every market across the globe. In US equity markets during the beginning of the year, January and February were home to some of the most consecutive violent selloffs and volatile trading days in history.
Major US indices plunged 10% in a matter of days, and this launched everybody’s favorite precious metal, gold, into a tremendous month long rally before it finally plateaued.
About five months later, in the early hours of June 24th, the United Kingdom voted in favor of withdrawing from the European Union which caused the British pound to suffer its worse intraday loss in history. Major US, European, and Asian stocks also suffered brutal beatings before US index futures temporally halted trading on the CME due to the relentless selloff.
Because an event like the UK leaving the EU (Brexit, as its colloquially called) has never happened before, volatility and gold saw some of their biggest rallies since the infamous collapse of Lehman Brothers in the midst of the 2008 financial crisis. After it was determined to be highly implausible for the UK to remain in the EU, gold rallied more than 8% while volatility spiked a whopping 70%.
Shortly after this Brexit induced selloff in global stocks and currencies, almost every large cap index fully recovered and made new highs within a matter of weeks; to many investors, this rally displayed the tremendous strength and resilience of an almost decade long bull market. Moreover, despite much of the fear rapidly draining out of the marketplace during the global equity rally, gold continued to make new yearly highs and stayed well above $1,300 until the beginning of October.
Markets around the world were fairly quiet until November 8th came around. Throughout the night of November 8th as votes slowly poured in to determine the next president of the United States, the main US stock index futures (S&P, Nasdaq, & Dow) began free-falling in unison before trading was eventually halted to stop the carnage; the similarities between Brexit and the US election are shocking.
Of course, investors flocked to gold for safety, and gold futures traded all the way up to $1,338, which was 20 dollars higher than the final closing price during Brexit. However, something very interesting happened in the middle of the miniature stock market crash that night. Sentiment completely changed when news broke that the famous billionaire activist investor Carl Icahn left a celebration party early to buy $1 billion in US stocks.
Like a volcano erupting from the ground, the S&P 500, Nasdaq 100, and Dow Jones futures all shot up with so much velocity that investors didn’t physically have enough time to cover their hedges and short positions. This 5% reversal in only a few hours was likely one of the biggest in recent history besides the flash crash in 2010. Needless to say, the rally in gold was short lived and the precious metal barely finished positive for the trading day. Additionally, in the fixed income market, the 30-Year US Treasury Bond futures plummeted as a result of the unexpected election outcome.
Since then, US stocks have enjoyed quite a healthy month-long rally with only a few negative days. As for the precious meals, gold and silver pared most of their event driven gains. For all of 2016, however, gold is still up around 9% which is an extremely decent year-to-date ROI.
Moving forward, many analysts and market pundits are completely unsure of what effect the new year and new president will have on markets. It is interesting to note, however, that in times of widespread uncertainty, like starting a new year with unprecedented political and economic forces, it pays (quite literally) to own risk averse assets like gold.