Action in the financial markets in Q4 of 2016 was dominated by the reaction to the U.S. presidential election, and in particular by the dramatic shift in sentiment after the vote. U.S. equity markets, already in a solid advance in response to improving economic data, surged upward in anticipation of stimulus spending, tax cuts and widespread deregulation in a Trump administration. Although the S&P 500 drifted slightly downward in the month leading into the vote, the post-election surge left its total return higher by 6.36% ($C) for the quarter, and up 8.77% ($C) for the full year. The Dow Jones Industrial Average faired even better, climbing 10.58% for the quarter and 10.18% ($C) for the full year. Returns in Canadian dollar terms were boosted by a strengthening of the U.S. greenback after Trump’s victory.
Canadian equities tagged along, building on their gains since the upturn in oil prices earlier in the year. The S&P/TSX Composite Index total return climbed 4.54% in the quarter, finishing the year with a solid 21.08% gain. Government bond yields, which bottomed in July in the U.S. and in late September in Canada, also surged, seemingly putting an end to the bond bull market that has been in place for over three decades. Banks and insurance stocks have soared in response to higher rates, but casualties of the return of confidence and rising interest rates include safe-havens, like gold, and “bond-proxies”, like utility stocks and real estate investment trusts (REITs).
Overseas markets generally advanced for the quarter as well, with the MSCI World Index and MSCI Europe Index gaining 4.34% and 2.03% ($C), respectively. However, the MSCI Asia Pacific Index did not follow suit, slipping -0.66% ($C) as emerging markets in the region were battered by fears of the economic challenges posed by the strengthening U.S. dollar, and possible trade disruptions under a Trump administration.