Spurred in part by the positivity that results from a welcome break after a tough year for many investors, the major movers were the same as those that pushed the index higher in the last quarter of 2016: banks, commodities producers and those firms that earn the majority of their revenue in dollars.
This makes sense as the factors that were driving those stocks higher at the end of last year remain in place, for the time being at least. But, the move resonates for another reason as well – a break through an all-time high is invariably accompanied by questions about whether or not it can be sustained. Likewise, while there is excitement about the year to come, many investors are heading into 2017 with a fairly cautious frame of mind.
“To us, the period that is most analogous to where we find ourselves now is the early 1990s, particularly late 1993, early 1994,” said Tcam CIO, Haig Bathgate.
“The US economy was powering ahead and what stopped the party was a rapid increase in interest rates. We could be in a similar position to that now. There is an improving underlying economy which invariably leads to a bit of investor complacency and what would pop that bubble would be an unexpected rate hike.
But, he adds, such a correction could be quite short lived. “It is more likely to be a mid-cycle slowdown than a return of a big correction.”
More broadly however, Bathgate says the firm is generally quite positive on the underlying global economy, but he does not want to look the performance gifthorse given to him in 2016 in the mouth.
“When you have strong double digit returns in a year, you have to be slightly cautious,” he said, adding that the firm is just about to add some simple put protection into the portfolios. But, this he says has more to do with locking in gains that worries about a correction.
