What 2016 Teaches Stock Traders
2016 was a twisting and churning year for stock traders, but much of it was an overreaction.
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In conventional or online stock trading, it is always useful to look back at the year that’s passing by to learn from mistakes and reflect on the successes. 2016 has been quite an active year for stock traders – one involving a good deal of speculation. This was because there were so many events that happened this year which made the speculative market churn – the initially gloomy retail stocks, Brexit, US Presidential elections, failed Italian referendum, oil prices rising again due to the global agreement of oil countries to cut production, etc. Poor Holiday Sales Sparked Panic as 2016 Opened When 2016 opened, it was in a situation of total panic. There were reports of the holiday sales of 2015 being pretty disappointing. Back then it was suggested that Q4 earnings were pretty poor, the price of oil was collapsing, sinking below $30 per barrel, and the Chinese stock market was experiencing volatility. But in hindsight it’s easy to see that all those fears were irrational and illogical. Things Weren’t as Bad The retail industry saw a big shift, with customers moving farther and farther away from physical mall shopping towards online shopping. That explained the gloomy reports emanating from physical retail giants such as Wal-Mart ($WMT) and JC Penney ($JCP). But they weren’t indications of an overall dip in consumer demand. The strength of the dollar and the signs of its reversal were partly responsible for the continued slide of oil and the earnings disappointments. In fact the dollar proved to be a vital indicator of things to come, and sure enough as Q1 kept progressing the stocks kept rallying, teaching everyone the lesson that the dollar must be paid attention to. Stocks Steadily Recover in Q2 Moving on to Q2, stocks recovered steadily. That was when the Bank of Japan made serious steps to reinvigorate the economy while the ECB also introduced policies for increasing liquidity and easing deflation fears. These moves helped to address the apprehension of investors regarding global growth. In the United States though, the economy was considered to be not growing as much as it was supposed to grow. That partly accounted for the Fed postponing the expected March rate hike all the way till December. But it wasn’t known back then that it would postpone it for so long. Q2 ended with the message that stock traders and investors must closely observe what happens in other markets.
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Brexit and Post-Brexit Overreaction Both Q3 and Q4 were dominated by unexpected results of a referendum or election. In the initial days of Q3, it was all about Brexit. The actual separation process from the EU has not happened yet, but the result of the referendum surprised one and all, to say the least. That was a lesson in overreaction. The markets overreacted with US stocks suffering massive drops. But it took three days for traders to realize that the actual effects of Brexit would take years to be felt. In those three days, the market bounced back. The Trump Shock in Q4 Sparked another Overreaction It was a somewhat similar reaction that happened during Q4, following Donald Trump’s unexpected victory at the US Presidential elections. While markets have usually favored Republicans, in this case Trump was making some pretty destabilizing claims during campaigning such as the trade war on China and the negotiable nature of the US Treasury debt. Much of the market, like Silicon Valley, preferred Hillary Clinton since she seemed to be the more stable one. But with the surprising result, stock futures collapsed, but in the next weeks the market bounced back. To cut it short, the dominating lesson learned from 2016 is that if there is a surprise result for any particular event the market is obsessed with, then it is worth expecting an overreaction which would get balanced in the following days or weeks. There is one more thing the year taught us, and that is to closely observe the markets and form insightful opinions which will help you make wise decisions. With online stock trading, you need efficient trading software for that.
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