“Expect 2017 to be another rollercoaster year in the financial markets.” Come on, the amusement park comparison must be the (my) most overused market descriptor in, what has now been, a decade since the financial crisis. But what else frequently goes up and down -- elevators, blood pressure and temperatures -- during a North Carolina winter?
How then to describe 2016? A hockey stick perhaps... US equities dropped more than 10% to start the year, only to climb, with few set-backs and a post-election bump, to finish near double digits (Dow Industrials +13.4%, S&P 500 +9.5%, NASDAQ +7.5%, Russell 2000 +19.4%). The year began with a hangover from the December 2015 Federal Reserve rate increase, worries over Chinese growth (again?) and $30 a barrel oil. But as has been the story multiple times in the past decade, global central bankers stepped in to stop the bleeding (cliché, but works with the hockey reference). In late June, Brits voted to leave the EU. Equities tumbled, but regained footing and continued to climb (as did the US dollar). 2016 closed, of course, with the election. For those watching the returns that evening, reports of tumbling Dow futures signaled another crisis in making. But most financial markets (save gold) took off the next day on expectations of U.S. economic growth and an end to artificially low interest rates.
Now, a few days into the Trump presidency, what’s up (or down) for financial markets in 2017? The post-election market euphoria of November and December may be waning as investors balance anticipated regulatory relief with possible increased corporate scrutiny (read Big Pharma). Will the President and Congress actually work together on tax-reform and infrastructure spending? Political uncertainty is always undesirable for the equity markets. However, U.S. and global economic growth were modestly improving before the election, while corporate profits were rebounding and wages were finally growing. Fundamentals vs. politics, which will prevail in 2017?
Thus, a few modest thoughts about the year ahead:
- U.S. equities advance in the 6 to 7% range for the year (following a negative first half – stocks often fall in the first few months of a new president);
- Oil, wages and the U.S. dollar continue to rise;
- The Fed raises rates twice in 2017 (tell me something I don’t know, John);
- The deficit becomes headline news once again; and
- Legislative policy changes will be slower and more tempered than initial expectations – both sides will land up being disappointed.
Hold on folks, the elevator is moving.