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Market Update – December 2016

Happy new year!

Just as you think that markets might calm down into a gentle end of year glide, December turned out to be quite an eventful month. “Trumphoria” continued to surge as US markets hit all-time highs despite the Federal Reserve raising interest rates from almost nothing to a little but more than almost nothing – 0.5% to 0.75%. The significance of this is that it’s only the second rate rise for the last decade and is perhaps the most credible signal to date that the interest rate cycle has bottomed out. One might expect that rising interest rates would lure money away from equities but if 2016 has taught us anything it is to expect the unexpected.

Domestically, a negative GDP scare threatened to unravel Australia’s incredible run of consecutive quarters without a recession (currently 101), the record belonging to the Netherlands with 103.

The reason for this was a decline in public spending that would normally contribute to growth, however markets barely reacted to this news on the back of improved Australian Terms of Trade. In a nutshell, it looks like Australia might equal the Netherlands’ record run of growth, but for the medium to longer term outlook we urgently need a source of growth to take over from mining and residential construction.

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