13. Emerging Markets
The IMF and many other economic watchers have warned that 2016 will be a year of slower growth, a theme common in this and prior reports. The difference now is that some move back toward normalcy seems to have taken place. The media are now less focused on China’s potentially collapsing growth. Russian markets have bounced. Despite ongoing corruption scandals, even Brazil seems to be less of a negative.
The iShares MSCI Emerging Markets (NYSEMKT: EEM), which is heavily dominated by China, was last seen at $34.10 on March 18, up 23% from the lows of 2016 and still up 6% year to date. The iShares MSCI Brazil Capped (NYSEMKT: EWZ) was up 28% year to date as of March 18. Even more, that ETF’s $26.45 share price on March 18 was up a whopping 53% from the 2016 low of $17.30 in January. The Vectors Russia ETF (NYSEMKT: RSX) was seen trading at $16.80 on March 18, for a gain of almost 15% so far in 2016, and up a sharper 42% from the $11.81 low in January.
14. U.S. Presidential Election Trends
The one theme that has marked this presidential election cycle, from the economic front only, is that none of the leading presidential candidates have been deemed as having the best policies for the markets and the broader economy as a whole. In January and in early February, the presidential election cycle was a total unknown. In February some of the candidates with more radical policies were influencing the markets. As of March 17, the race seems to be almost down to one candidate on each side. This means that the odds of transaction taxes and the odds of business owners and the wealthy paying north of 60% taxes is now a lower probability.
Regardless of which candidate actually wins the presidential election, getting even a hint of more certainty (or less uncertainty) is often good enough for the markets and for the economy to begin pricing things in. For better or worse, the markets prefer to only have to interpret a couple of candidates rather than many with unknown to unfriendly economic policies.
15. General Geopolitical Risks
If there is one term the financial markets and economy watchers have such a hard time factoring in and interpreting, it is geopolitical risk. This is effectively a catch-all basket that lumps in military and terrorism, governments fighting with each other, foreign issues and anything else outside of normal economics and markets. In the first weeks of 2016, the world was still reeling from the attacks in Paris and in San Bernardino, Calif. The refugee crisis in Europe was still front and center, and ISIL was a serious daily news threat. We also had a U.S. presidential field that was so crowded you could have made two football teams, with bench-warmers to boot. The fears of Iran and Russia were discussed much more, and North Korea was larger news than today. There were even higher risks of uncertainty in China and growing stress in Brazil.
The unfortunate reality is that all these geopolitical risks and threats still remain as serious and viable risks to the economy. Those risks are just less of a focus in the media right now, as there have been other issues following those events. Now the country seems more focused on the iPhone unlock fight for mass privacy issues, the higher likelihood of Trump vs. Hillary, the recovery of oil and commodities and other issues. Update: dual bomb attacks in Brussels took place on March 22, 2016.
A few things to consider in conclusion here: Stock markets already have had five weeks of gains, and as of mid-March the market valuations are feeling stretched again. Bonds have entered into a slow zone, and oil and commodities have come back but still pose many problems for the top companies. The dollar remains elevated compared with recent years. And foreign central banks and governments seem to be willing to try almost anything to not slide back into recession. Sadly, there is no free lunch in the markets, and these could all easily revert back into more gloom faster than any of us would like to think.