Investment Commentary 2017 Outlook
Investment Commentary
Consumer Staples, and Utilities. In our opinion interest rates have bottomed, deflationary trades are wrongfooted, inflation is rising, “real assets” names should be bought, the U.S. dollar probably trades a little higher, the labor market continues to tighten, wages rise, and business investment improves.” – Investment Strategy 12-27-16, Jeffery Saut Chief Investment Strategist, Raymond James
2017 Outlook A Year of Transition My investment outlook for the second half of 2016, entitled Underlying Strength called for the continuation of a slow-growth U.S. economy characterized by tailwinds from lower gasoline prices, continued low interest rates, and steady consumer spending. This economic performance came to fruition, and although volatile, the U.S. stock market (as measured by the Standard and Poor’s 500 Index) ended the year with a nice post-election rally for a total gain of 11.96%, while bonds (per the Barclay’s US Aggregate Bond Index) finished with an expected more modest gain of 2.65%. Although our core investment approach is to follow timeless financial principles rather than to make bold market predictions, there is every reason to believe the investment climate will remain positive for 2017 as the underlying strength of the U.S. economy will likely prevent a recession. Furthermore, while the impact from the election if far from certain, the Republican majority in the House and Senate has tipped the balance in favor of fiscal conservativism, which has historically been beneficial for financial markets over the longer term. More importantly however, I expect 2017 to be a transition year economically because the U.S. continues to move into the next stage of economic expansion whereby its growth is derived from corporate earnings and less from government stimulus and low interest rate policy.
Finally, sustained economic growth? “As we enter 2017, we expect the current economic rebound to continue suggesting GDP growth will likely move toward the 3% level by the end of the year based on less monetary stimulus, more fiscal stimulus, a reduction in the corporate tax rate, and deregulation. Our S&P 500 price target for the year is 2450, but we believe the S&P 500 may actually exceed that level as earnings growth ramps. We think the post “Trump Trades” will continue to have “legs.” Our team favors small capitalization names over large caps and value over growth. We also urge investors to overweight Financials and underweight bonds, bond proxies,
Of course there are always risks to our investment thesis, and those most prominent this year are the slowing economies (and tension with their respective trade relationships) in China and other Emerging Markets, the continued resolution of several banking crises in Europe, and the expected stronger dollar, higher inflation and higher interest rates in the U.S. However, I am reminded of a favorite quote which offers the historical perspective that we may be far from the end of the current cycle: “What Ends a Bull Market? Recession prospects, accelerating inflation, tight money supply, excessive wage inflation, high interest rates, and investor euphoria.” - Bob Doll, Chief Investment Officer Nuveen Investments Kingdom Advisors National Convention Presentation
The risks in the current investment climate may slow the current expansion, but history and the current economic indicators continue to provide ample support for remaining invested according to our positive assumptions. As always, I will continue to assess the relative risks and opportunities as they unfold. Thank you again for your patience, confidence, and trust.
Mark Mark T. Riefer President Level Paths LLC is registered as an investment adviser with the state of Missouri. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. This information should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. Information presented is believed to be factual and up-to-date and was obtained from sources known to be reliable. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of presentation and are subject to change.
Consumer Staples, and Utilities. In our opinion interest rates have bottomed, deflationary trades are wrongfooted, inflation is rising, “real assets” names should be bought, the U.S. dollar probably trades a little higher, the labor market continues to tighten, wages rise, and business investment improves.” – Investment Strategy 12-27-16, Jeffery Saut Chief Investment Strategist, Raymond James
2017 Outlook A Year of Transition My investment outlook for the second half of 2016, entitled Underlying Strength called for the continuation of a slow-growth U.S. economy characterized by tailwinds from lower gasoline prices, continued low interest rates, and steady consumer spending. This economic performance came to fruition, and although volatile, the U.S. stock market (as measured by the Standard and Poor’s 500 Index) ended the year with a nice post-election rally for a total gain of 11.96%, while bonds (per the Barclay’s US Aggregate Bond Index) finished with an expected more modest gain of 2.65%. Although our core investment approach is to follow timeless financial principles rather than to make bold market predictions, there is every reason to believe the investment climate will remain positive for 2017 as the underlying strength of the U.S. economy will likely prevent a recession. Furthermore, while the impact from the election if far from certain, the Republican majority in the House and Senate has tipped the balance in favor of fiscal conservativism, which has historically been beneficial for financial markets over the longer term. More importantly however, I expect 2017 to be a transition year economically because the U.S. continues to move into the next stage of economic expansion whereby its growth is derived from corporate earnings and less from government stimulus and low interest rate policy.
Finally, sustained economic growth? “As we enter 2017, we expect the current economic rebound to continue suggesting GDP growth will likely move toward the 3% level by the end of the year based on less monetary stimulus, more fiscal stimulus, a reduction in the corporate tax rate, and deregulation. Our S&P 500 price target for the year is 2450, but we believe the S&P 500 may actually exceed that level as earnings growth ramps. We think the post “Trump Trades” will continue to have “legs.” Our team favors small capitalization names over large caps and value over growth. We also urge investors to overweight Financials and underweight bonds, bond proxies,
Of course there are always risks to our investment thesis, and those most prominent this year are the slowing economies (and tension with their respective trade relationships) in China and other Emerging Markets, the continued resolution of several banking crises in Europe, and the expected stronger dollar, higher inflation and higher interest rates in the U.S. However, I am reminded of a favorite quote which offers the historical perspective that we may be far from the end of the current cycle: “What Ends a Bull Market? Recession prospects, accelerating inflation, tight money supply, excessive wage inflation, high interest rates, and investor euphoria.” - Bob Doll, Chief Investment Officer Nuveen Investments Kingdom Advisors National Convention Presentation
The risks in the current investment climate may slow the current expansion, but history and the current economic indicators continue to provide ample support for remaining invested according to our positive assumptions. As always, I will continue to assess the relative risks and opportunities as they unfold. Thank you again for your patience, confidence, and trust.
Mark Mark T. Riefer President Level Paths LLC is registered as an investment adviser with the state of Missouri. The firm only transacts business in states where it is properly registered, or is excluded or exempted from registration requirements. Information presented does not involve the rendering of personalized investment advice, but is limited to the dissemination of general information on products and services. This information should not be construed as an offer to buy or sell, or a solicitation of any offer to buy or sell the securities mentioned herein. Different types of investments involve varying degrees of risk, and there can be no assurance that any specific investment will either be suitable or profitable for a client's investment portfolio. Information presented is believed to be factual and up-to-date and was obtained from sources known to be reliable. It should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the author as of the date of presentation and are subject to change.
