The year markets wore blinders

And other 2016 investing takeaways

The year is winding down and you’re probably kind of tired. Maybe it’s a good kind of tired, the kind that comes from a job well done. Hey, markets are way up from this time last year, and investors seem in the mood for more gains. So who’s complaining?

Then again, some of us might be feeling a different kind of tired, the kind you get from saying (politely) “WTH?” over and over and over again.

Yup, it’s been that kind of year: full of surprises, twists and turns. It’s been, er, fun, right? But now that it’s (pretty near) over, it might not be a complete waste of time to wonder whether there’s anything worth taking away from all this tumult.

So, in the spirit of auld lang syne, here’s a non-comprehensive go at things we learned in 2016.

By “we,” I mean Canada and the United States, economically speaking. For years, we’ve assumed that what’s good for our largest trading partner is pretty much good for Canada. But 2016 put the lie to that notion. The U.S. managed to consolidate its recovery, while Canada continued to flounder about.

Sure, Canada pegged a surprise 3.5-per-cent GDP growth in the third quarter, thanks to the rebuilding of Fort McMurray, Alta., but most economists see that as a one-time thing. The Bank of Canada expects growth will come in at 1.1-per-cent for the year, which shows just how bad the first two quarters were and this quarter will be.

Meanwhile, the U.S. hit 3.5-per-cent growth in Q3 as well, but will end 2016 up around two per cent; most economists see stateside GDP continuing to pick up steam next year.

Why the disconnect? There are lots of reasons, but the biggest disappointments have been manufacturing exports and business investment, which continue to suck wind despite low low rates.

That highlights the next big lesson, which is …

Ever since the Great Recession, hyperstimulative central bank policies have dictated the rising and the falling of markets. This was especially true for the U.S. Federal Reserve. Only a year ago, markets went into freefall when the Fed raised rates for the first time in nearly a decade. They recovered only after the Fed renounced its hawkish ways.