Predictions are often easy to make, but even the best researched and considered predictions are often 180 degrees wrong. So for that reason, we are reluctant to make New Year predictions. However, what is important is to figure out what are likely to be the biggest influences on the markets in the coming year.
It’s an especially good idea to consider macro factors this year because markets have made dramatic turns around the recent elections. Domestic stocks indices are at new highs (up from highs set last Spring) and bonds are now testing the lows of summer 2015, after reaching record high prices this past summer.
We’re thinking the big 2017 market influences will be:
- The Fed
- The Business Cycle
The markets could be facing real headwinds if the Fed decides to get aggressive in its efforts to head off inflation. Politics are important here because a surge in economic activity due to fiscal stimulus, should it lead to an acceleration in wage gains, will almost certainly force the Fed to raise rates more rapidly. Of course, the result will be lower bond prices and, probably, lower stock prices.
Conversely, should fiscal stimulus efforts get stuck in congress, or significant scandal or problems overseas envelope Washington, stocks will most likely struggle, as we are so far along in the business cycle (nearly 8 years.)
It does seem that; if the economy continues on its current modest growth path, not requiring an acceleration in rate hikes, and Washington and the world stay relatively calm, that the positive economic cycle can continue into 2017. What we want to do is monitor these three big influences and how they seem to affect markets in the New Year.
As we know, markets fluctuate throughout the year and, as usual, we’ll want to take advantage of under-priced securities and over-priced securities as the opportunities arise.
#Fed #Politics #Economy #Stocks #Bonds