The FTSE 100 Index closed 2016 at an all-time high of 7,142 as the ‘Santa Rally’ which had happened before Christmas continued on to the New Year.
2016 was a year of unexpected political events and volatile markets. However the stockmarket put those political shocks behind it and ended the year with confidence in reaching new all-time highs.
This is a sign of confidence in the future prospects of the companies which make up the index, their ability to grow profits and deliver dividends and capital returns to investors – at least relative to other asset or investment types.
For personal investors who take a long term buy and hold strategy, looking through any short-term volatility, 2016 was a good year. It has been a welcome relief after two years of losses, with the FTSE 100 recording its strongest year since 2013.
Investors with exposure to the FTSE100, perhaps through an index or tracker fund or an Exchange Traded Fund, would have seen their investment rise 14.4% in the year and on top of that would have received dividend income adding a further c.3%. This kind of return is outstanding when compared to the return which would have been available on cash or property over the same period.
A braver investor who bought into the market at its low point in February 2016 would have seen a return of nearly 30% with any dividend income on top of that.
What does this mean for personal investors in 2017? Well, past performance should not be used as a guide to future performance and, of course, markets can go up as well as down meaning any capital invested is at risk. However, in the past 30 years the stockmarket has not posted a single year of gains with losses in the years either side.
History would suggest that following a rise in 2016 breaking two years of losses in 2014 and 2015, 2017 may be another positive year for the market. With the overseas earnings of FTSE 100 companies supported by weak Sterling, with fiscal loosening in the US and the UK following the respective votes in 2016, and with low interest rates, there are a number of reasons why investors may look optimistically into 2017.
At a broader level some theories suggest the stockmarket goes in c.15-20 year cycles. Twenty years of gains, followed by 20 years of stagnation or consolidation, followed by 20 years of gains etc. This has been in evidence since the early 20th Century. The market posted a strong performance through to the late 1990s and the dotcom boom. Only now, nearly 20 years later, the levels reached then have only just been reached again.
Based on this broader cyclical theory this could mean we are beginning to enter the next period of stockmarket appreciation. Of course, conversely we could be entering the period that will prove that theory wrong!
Please remember, no news or research item is a recommendation or advice to buy. Every Investor is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest.