Financial historians looking back at 2016 will comment on what did not happen. Politically if not economically it was a wild year and yet most global markets responded with either steady indifference or easy optimism.
It is hard to interpret the UK’s vote to leave Europe or the election of Donald Trump as making the world more predictable, but domestic stock markets shrugged at the former (after some initial jitters and a sharp adjustment in the value of the pound) and greeted the latter with a merry step up. Elsewhere, Italian bonds were not too fussed by the failure of Matteo Renzi’s constitutional referendum in Italy. The Shanghai market was reasonably stable even as Chinese economic headlines were dominated by capital flight and the country’s high levels of private-sector debt. So much for the chestnut about markets abhorring uncertainty.
Another market mantra that might fit better is “buy the rumour, sell the news” or — adjusting for the current situation — “buy the vote, sell the policy”. Trump has yet to enter office and the UK, so far from enacting Brexit, has yet to set the timetable for doing so. Once these and other events happen the possibility of disappointment arises.