What does 2017 hold in store for us?
One thing we know unequivocally is that it will be year of above trend change and uncertainty. That has to be the case because not only do we have a new President, but also that new President is Donald Trump—who promises and will certainly deliver to some extent, new policies and laws that will have a significant effect on the economy, certain sectors and specific stocks. Even if Trump ultimately does very little, his iconoclastic communications alone will be enough to create a heightened sense of instability. In that environment there will be fear, change and opportunity.
If it sounds like I am focusing too much on the new President, so be it. I’m just convinced that he will be the primary driver of the narrative in 2017.
And so what can we conclude?
First of course there’s been a great deal of recalibration already after the election. And that’s familiar stuff now: stocks have rallied 10% on average, while infrastructure plays, cyclicals and financials have climbed more. On the other hand global consumer product companies and dividend plays, or bond proxies have lagged, as bonds have tanked while rates shave spiked. Fair enough. But is this the beginning of a trend or is that the extent of the Trump dislocation?
I would argue the former—that this is the beginning, not the end—at least over the medium term. Typically these big resets take years to run their course. Check out what hedge fund king and Bridgewater founder Ray Dalio had to say about how profound the impact of the Trump administration will be on the economy and the markets. Dalio references Margaret Thatcher and Ronald Reagan, and that could be underestimating things. Dalio’s analysis is well worth reading.
Or consider what a prominent Democratic Wall Street financier told me recently: “We lost. Now it’s time to make money.”
Here then are six market themes to note for 2017, along with action items. NB: If some of this stuff sounds obvious, ask yourself 12 months from now if you really heeded it enough. I know I never do.
Again the big overriding point is that what worked between the election and the inauguration will continue to work, (for instance companies that benefit from domestic construction, deregulation and higher rates), and so too will great evergreen success stories, like Yahoo Finance’s company of the year, Nvidia.
Otherwise:
Rates will rise
It kind of makes me laugh because this is really the ultimate Groundhog Day call, right? Last December, (2015), Janet Yellen raised rates and indicated there would be a bunch more hikes in 2016, and that didn’t happen. Of course we only had one hike almost exactly a year later (December 2016) and that might not have gone down had Trump not been elected. Now the Fed is once again indicating hikes for the following year after a December raise, as well as three more hikes in 2018 and 2019.