Chart-catching - Are You Surprised You're Surprised?

Equity market performance around key events

Neither the UK’s vote to leave the EU nor the victory for Donald Trump in the US Presidential election were enough to derail the equity markets despite very gloomy predictions.  Perhaps then we shouldn’t have been surprised to see markets move higher post the Italian referendum in which the electorate voted against reform and forcing a change of leadership.

All lines look at the equity market performance of the relevant market index 5 days prior to the key event and tracks it to 11 days after.

[Waverton, Factset, Indices in local currency, 21/12/2016]

Despite all the macro headwinds and seemingly negative events, including a collapse in the oil price, it may surprise some to hear that the FTSE All World has returned 29.93% in Sterling terms in 2016 (to 21st December).

As we go into 2017, recent events remind us that what really drives equity markets higher is the expectation of higher company earnings and dividends.  These have tended to disappoint in 2016 but expectations for 2017 remain quite high.  We do seem to be at an inflection point which leads investors to look through shorter term weakness but we will need to see real signs of growth if the market is to make significant progress from here.  We are positioned with cautious optimism but our bias towards quality companies will help us weather disappointment should it occur.

Thank you for reading our Insights in 2016 and we look forward to sharing more with you in 2017.

Risk Warnings

The views and opinions expressed are the views of Waverton Investment Management Limited and are subject to change based on market and other conditions.  The information provided does not constitute investment advice and it should not be relied on as such.  All material(s) have been obtained from sources believed to be reliable, but its accuracy is not guaranteed.  There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information.

Changes in rates of exchange may have an adverse effect on the value, price or income of an investment.

Past performance is no guarantee of future results and the value of such investments and their strategies may fall as well as rise.  Capital security is not guaranteed.