January 20, 2017
Fourth Quarter 2016: Investment Perspective
Many market observers have described 2016 as a turbulent year. It certainly felt that way. Fears around Chinese growth in January sent the U.S. stock market down 10%. The market clawed its way back to flat in time for the Brexit turmoil. Then the surprise result in the U.S. election jolted markets upwards. If you only experienced markets through Twitter and the New York Times, it was a turbulent year. But not as seen through the data. The chart above shows risk aversion (as measured by the VIX Index) declining steadily, ending at a level close to the 10-year low. Yes, there were some ‘jolts,’ but nothing different from prior years. So what may seem like a truth is not supported by the data. Just as the media are rife with ‘fake news,’ financial markets are prone to ‘fake facts.’ Describing a quiescent year as ‘turbulent’ is relatively innocuous. However, false narratives can lead to false conclusions and, worse, inappropriate actions. So, my New Year’s resolution is to be particularly vigilant at testing ‘stories’ for the germ of truth in the data. Still, we should ponder why memes with ‘truthiness’ — as opposed to truth — take root so quickly?
On a quarterly basis, Hirtle Callaghan publishes our perspective on the current market. We have included the first page of that piece below. If you would like to receive the full perspective, please contact us.