Despite much anxious hand-wringing, the bull market survived the Presidential Election results with only a couple of wobbles before finding its way back to firmer footing. Analysts have counted out this aging bull market, which will be 8 years old soon, many times – only to be surprised by its sturdy resilience. Perhaps we will see some major shifts in 2017, but for the moment uncertainty is the key word.
There are far more questions than answers regarding the incoming administration’s approach to economic growth, monetary and trade policies. The market has been making slight upward progress with no real sense of conviction for more than a year. Now, it will have to contend with a new president and a slew of new policymakers whose lack of political credentials add a whole new layer to the overall atmosphere of uncertainty.
That being said, pundits are braced for some volatility in the first quarter of 2017, as analysts and individual investors anticipate a possible unprecedented amount of change in domestic spending and foreign policy, as well as tax and immigration policies. Here are some thought-provoking observations for the end of 2016:
- Number crunchers are predicting that the economy will speed up to 2.3 percent annual growth versus the modest 1.5 percent we’ve seen during 2016. If this comes to pass, we can expect to see corporate earnings improving in the first half of the New Year.
- The significant role that the Federal Reserve has played on stock market performance – low interest rates have made dividend yielding stocks relatively attractive compared to the bond market – might be coming to an end. Some analysts are now looking for earnings potential to be a major factor in the markets, which means that there will be winners and losers, and certain market segments will do better than others.
- Analysts who are willing to wager on the future believe that companies involved in energy, infrastructure development, and military-related businesses will fare well in the new Trump administration.
- Increased spending on highways, bridges, airports and infrastructure is a big priority with President Elect Trump and has the support of both parties. Materials companies and those involved in construction are likely to profit from this commitment.
- Defense contractors and allied businesses might benefit from Trump’s desire to increase defense spending.
- Although there is no doubt that the health care industry will undergo a shakeup as Republicans try to dismantle the Affordable Care Act, few experts want to predict how this will play out. It could mean that both health care delivery and health care insurance will take a beating. Or maybe not.
- Similarly, within the pharmaceutical industries, there are contradictory pressures underway. Given the Trump administration’s pro-business stance, the big drug makers could see less demand for price regulation. On the other hand, media coverage of price gouging continues to hit the headlines and the new administration might find it more difficult to maintain its preferred hands-off approach.
- On the domestic front, consumers are benefiting from rising wage rates, and promised tax cuts could prove a boon to consumer spending. Because consumer spending accounts for a whopping 70 percent of the domestic economy, this could stimulate economic growth in the short to medium term.
- On the down side, Wall Street generally tends to be nervous about protectionism and the possibility of retaliatory measures that could hurt multinational companies here. Similarly, some fear that Trump’s stance on immigration could backfire for growth industries like the big tech leaders that rely on a supply of skilled labor from around the world.
The above observations are general in nature and are not intended to replace counsel from professional tax and investment specialists.