The economic year that was will never be again.
The new year ahead will be like none we have ever seen before.
Indeed, this time last year, I forecast that panic would hit Wall Street in 2016.
And immediately after the new year, the Dow Jones suffered one of its worst openings in its history.
By mid-January, some $6 trillion of share value had been wiped away.
Then there was Brexit in June. Despite polls showing UK citizens would support staying in the European Union, they voted to leave.
That triggered a sharp, but temporary, market meltdown.
Central banks promised to do all they could to stop a market beat down.
Within days, led by the US Federal Reserve again reneging on its December 2015 promise to raise interest rates four times in 2016, equity markets bounced back.
The supply of cheap money continued to fuel corporate stock buybacks and mergers and acquisitions.
Then came Election Day.
Global equity-market forecasts said Hillary Clinton would be bullish for equities and bearish for gold. A Donald Trump victory would be bearish for equities and bullish for gold.
But the market forecasts and presidential polls were wrong.
Following the Trump victory, all three US indices hit record highs. Gold prices plunged 11%, falling to February lows.
In addition to stocks posting nearly a month-long win streak, the dollar index hit 14-year highs.
The markets rallied. Retail turned favourable. Wage data perked up. The CME Group’s FedWatch raised market expectations for a December interest-rate increase to 95%. And it happened.
So, what happens in 2017?
Now here’s what happens next…
Tax breaks and deregulation may drive corporate profits. But continued job and wage growth will depend on the true amount of Trump-backed stimulus and overseas tax recovery.
In addition, should the Trump administration renegotiate trade deals and even slightly increase manufacturing jobs in the US, psychologically and financially it will boost the nation’s spirits and growth potential.
As US interest rates rise and the dollar gets stronger, emerging-market currencies will weaken. That will dramatically increase their debt-repayment burden and increase financial market instability.
In developed nations, cheap money — not corporate earnings — boosted equity markets with record-breaking merger-and-acquisition and stock-buyback activity.
As interest rates rise, and the cost of borrowing increases, true price discovery and market fundamentals will drive the markets.
You could call that a return to market sanity, in a way.
Plus, I predict a stronger dollar will continue to push down gold prices.
I forecast gold prices will rebound when global financial market volatility and increasing geopolitical unrest escalate.
Which as we know could be at any moment.
2017 promises to be full of surprises, but, with this basic blueprint, you’ll be ready for anything.
Until next time,
For Markets and Money, Australia