The latter half of 2016 saw a strong rally in US markets with all major US indices reaching record highs. This was a positive ending to a year which saw substantial spikes in volatility beginning early in the year with a market sell-off that mirrored falling energy prices and continued due to uncertainty around geopolitical events such as the Brexit vote and the US elections. Investor confidence improved in the second half of 2016 in part due to stronger US economic news and a recovery in commodity prices.
After beginning the year in a downward spiral with WTI falling below $30/bbl, oil prices showed signs of a strong recovery. The December OPEC and non-OPEC agreements to limit output contributed to prices rising to more normalized levels.
The optimism suggested by the market rally was supported by the healthy economic indicators which showed a robust US economy. Unemployment hit 4.6% – the lowest since the financial crisis, while the third quarter GDP number was revised upward – from 2.6% to 3.5%. However the outlook for 2017 is one of global divergence. While US growth is expected to increase in 2017, the rate of growth in the EU and China is expected to decelerate.
The decline in market volatility after the first quarter, coupled with the improving performance in the US economy, provided the Fed with the necessary data to support their decision to raise the benchmark interest rate range to 50-75bps in December. This was the first rate increase in 2016 and only the second increase since the financial crisis. The Fed indicated an additional three possible rate increases in 2017. This drove activity in debt markets as companies looked to refinance ahead of expected future rate increases.
Although the past two years have seen relatively fewer technology IPOs due to market volatility and the increased availability of private financing, the strong performance of US technology IPOs and expected investor interest have given unicorns a reason to look to access capital markets in 2017.
The market volatility early in the year dragged down activity across the spectrum of financing options on a year-over-year basis. However, as volatility subsided, deal activity increased in the second half of the year, though not fast enough to make up for early declines.
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