2016 was a year full of unsettling headlines and subsequent market overreactions, in most cases soon reversed. This may be even more the case in 2017, where we will first have to cope with the implementation of key commitments made in 2016 (most obviously, Mr. Trump’s policy priorities and the triggering of Article 50 by the U.K. to commence the Brexit process). And there are a lot of other new possible disruptive factors too – ranging from elections in Europe, to the upcoming Chinese leadership reshuffle. An additional point to remember is that in the past monetary policy tightening cycles – as the US is now embarking on – have often led to periods of increased volatility. At the moment, market volatility also seems rather low for the level of global economic policy uncertainty. Investors will therefore need to distinguish between short-lived market overreactions (as happened, for example, after the Brexit referendum vote) and longer-term structural market shifts.
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