It’s been a tumultuous year for markets; one that has very hard for the pundits to predict. From the pound flash crash to the post-Trump stock market rally, there has been some exaggerated market movements and the kind of volatility that many traders seek.

So what were the most profitable trades of 2016? Here’s our take on some of the biggest market moves seen over the last year.

wall_street_sign_flags

Long US indices

 

Coming into the US elections, most people were talking about how a Donald Trump victory would send the stock market off the boil. But the exact reverse has been the case and we have witnessed all 4 major stock indices hitting record highs. The strength of the bull market has taken many off guard and is now being talked about as the long-awaited ‘great rotation’ into stocks from bonds.

After opening the year on 17,421, the Dow Jones industrial average plunged 2,000 points to 15,450 in February as the collapse in oil hit energy stocks and the bank lending to them. By the start of the December, the Trump trade had fired the index to multiple all-time highs above 19,200.

WallStreet_Dec7

 

Banks - Short Euro, Long US

 

European banks registered some improvement towards the end of the year but nothing like their US counterparts. The Euro Stoxx Banks index slipped more than 10% in the year to December 7th, while US banks on the S&P 500 Banks Index registered a 15% rise. Off their February lows, the likes of Goldman Sachs and Bank of America have near enough doubled their market cap.

Pressure continued to mount on the European banking sector ahead of Italy’s referendum and fears about contagion risk from a sovereign debt-like event in one of the Eurozone’s members. In the US, the prospect of a lighter touch to regulation from the president-election Trump has buoyed America’s largest lenders.

 

Long Dollar versus EM

 

By the middle of 2016 the dollar bulls were in hiding. The dollar index had fallen to its lowest in more than a year, sinking to 93 at one point in April and failing to see much improvement as relatively lacklustre US data was failing to make the case for the Federal Reserve to raise rates any time soon. FOMC members were talking up global risks and even Brexit was clouding their judgment.

But by the end of September the momentum had shifted after a healthy run of jobs numbers. By the time Trump won the election markets were already firmly pricing in a rate hike in November. The effect of the Trump trade only accelerated the shift and we saw the dollar hit 14-year highs against a basket of currencies.

The strongest rises were seen against emerging market currencies, with the dollar gaining approximately 10% against the Mexican peso and Turkish lira. The UK pound also came in for a heavy beating and despite some price action to justify it, sterling has yet to earn the status of an EM currency.

USDMXN_Dec7

Long Yen

 

But the Trump effect on the forex market can be overegged – the safe haven yen has actually strengthened this year. Despite the Bank of Japan moving to a negative rates policy and a massive rally for USD since the US election, JPY was still up about 5% for the year. 

Short Pound

 

A simple bet on the outcome of the UK’s referendum on EU membership turned shorting the pound into one of the standout trades of the year. June 24th saw some of the most volatile moves in the currency markets ever seen and cable nosedived. By December GBPUSD was trading close to its weakest level in 30 years and the pound easily gets the prize for being the worst performing developed world currency in 2016.

 

Long Industrial Metals

 

Dr Copper says the global economy is on the up after the metal posted 30% annual gains in 2016. In January the death of the commodity ‘supercycle’ had meant a collapse in metal prices and copper was on its knees. Fast forward to the end of 2016 and the red metal is buoyant on expectations of a US infrastructure splurge by Donald Trump. Prices are still only at 2015 levels, however, as waning Chinese appetite outweighs the lift from the US.

Zinc has down even metal, with the futures prices doubling from their January lows, which was the weakest for the metal since 2009. Palladium was up around 50% by the start of December.