What lies ahead in 2016 will certainly be interesting but hopefully less traumatic than 2015 which saw enormous political and economic turmoil, including events such as the Greek debt crisis, a collapse in the price of oil and China’s economic meltdown.
Big Decisions Already Made
Going into 2016, there have already been two key decisions made in December that may have significant impact on the both the U.S. and the global economy. First of all, the Fed finally bit the bullet and raised interest rates for the first time in 10 years. Also in December, the IMF finally agreed to allow the Chinese currency, the Renminbi, into its key basket of Special Drawing Rights currencies.
With the ink on these decisions still drying, their true effects are yet to be seen and analysts will be keeping a close eye on the next round of economic reports to see, in particular, if the Fed raising interest rates has had any initial negative impact.
This year is already shaping up to have one of the mostly hotly contested battles for the White House in recent history. While this does not necessarily mean that this will affect financial markets, there is a historic trend that the performance of the S&P 500 is poorer in election years. However, the S&P finished 2015 mostly flat which does leave room for significant growth this year.
Putting the election aside, the global economic picture at present points to a year of sluggish growth and now that the Fed has started to raise rates, if it continues to do so too aggressively, could impact stock markets globally. This may make 2016 a year of rising risk premium which will put downward pressure on stock prices and increase the yield on low risk bonds. As a result, 2016 could be a difficult year for investors looking to find strong positive returns, but only time will tell.