Though 2018 kicked off on a more muted note in the UK, with the FTSE 100 unable to top its record high on the last day of trading in December, things generally didn’t seem all that different in the financial and political spheres.
The S&P 500 was able to maintain its winning streak; the tragi-comic Brexit saga was still ongoing; Trump was still tweeting and boasting about the superior size of his “Nuclear Button”; PMI data looked healthy across the board, with China and India data looking particularly promising; earnings upgrades and downgrades resulted in the swift reward/punishment we’ve become accustomed to seeing since last year.
With all this in mind, it would be tempting to forecast the new year will simply be a rehash of 2017. Last year might not have had the same high stakes twists and turns of its predecessor 2016, which gave us the Brexit vote and president Donald Trump, but it was certainly a game changer for investors.
Much of what was “supposed to happen” in 2017 didn’t. The annual 10% market correction never came; one of the longest bull markets in history refused to quit; inflation proved impossible to corral/predict, even to Federal Reserve chair Janet Yellen.
Looking back, what lessons can investors take away from this enigmatic year with its at times topsy turvy logic and non-conformist nature?
Don’t try to predict the next correction
One of the biggest takeaways from 2017 was that global markets can (and will) climb higher.
As Lee Wild, head of equity strategy at Interactive Investor, notes “predicting the end of this equities bull market has proved a fool’s errand”.
Resisting the urge to predict the demise of the bull market and next correction was one of the biggest lessons learned for Skerrits’ head of investment Andy Merricks.
“What we’ve learned is not to get too carried away with headlines, social media, fake news, real news whatever it is that seems to be upsetting everyone,” reflects Merricks.
The biggest losers of 2017 were those overly cautious investors who missed out on “the persistent equity gains that were there to be had”, he continues.
“Research has shown that the drawdown in bonds was greater than any drawdown in equities throughout the entire year. So, if you had gone safe into bonds, you’ve actually cost yourself some performance.
“To call the bad news is risky. It doesn’t mean you’re completely gung-ho and don’t keep an eye on the risks but beware trying to second guess the corrections because they fooled everyone last year and could do well into 2018 as well.”
Rising risks
That said, it is equally foolhardy to throw caution to the wind and assume volatility will hover around the historically low levels seen last year and that markets will react nonchalantly to geopolitical surprises, adds Tom Becket, Psigma’s chief investment officer.
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