From Global Financial Private Capital
We believe a multitude of events that are taking shape in 2017 will lead to elevated uncertainty and higher capital market volatility over the coming year. The Brexit vote and Italian referendum results will continue to be dealt with well into the new year as Germany and France hold their own national elections in 2017. The China relationship looks likely to reset in 2017 as President-elect Trump appears to be taking a tougher stance with this country when it comes to trade policies and currency practices.
Central bank policies will likely continue to diverge in 2017 as the U.S. goes down the path of higher policy rates with most of the rest of the world continuing to ease. Global interest rates started moving higher at the end of 2016 and we believe the pressure will be on rates to continue to increase in 2017.
On top of those items, the U.S. will transition to a new presidential administration in January. Capital markets were caught off guard by the unexpected victory of President-elect Trump. Following the election, investors tried to reset positions based on this outcome after it had been widely expected that Clinton would win. For the most part, this post-election period was marked by an equity market rally, which pushed the major U.S. equity indices to new all time highs, but bonds struggled with rates surging higher.
The capital market action post-election leads to the question of whether equities rallied too sharply and whether bonds sold off too much to close out 2016. This Outlook will try to provide some context around how we are going to be evaluating those types of questions in the new year. Frankly, this is both a challenging and an interesting time to explore the potential public policy, economic and capital market environment moving forward into 2017.
Overall, we believe we are entering a year of elevated uncertainty and higher capital market volatility in 2017. If the economic optimism following the Trump election is realized, that would be supportive of equities in the new year. However, much of that optimism is already priced into stocks and any disappointing news could hit equities in the near term. We think interest rates will continue to grind higher, which will be a headwind to bond prices. However, we expect this path to higher rates to be choppy as U.S. rates are significantly higher than many global rates, which could spur some demand for U.S. Treasuries. Fundamentals drive the long term, but the near-term could be impacted by some of these unsettled questions, which we think are the central themes entering 2017.
This commentary is not intended as investment advice or an investment recommendation. It is solely the opinion of our investment managers at the time of writing. Nothing in the commentary should be construed as a solicitation to buy or sell securities. Past performance is no indication of future performance. The author has taken reasonable care to ensure that the information is accurate. Liquid securities, such as those held within DIAS portfolios, can fall in value.
Global Financial Private Capital is an SEC Registered Investment Adviser. Registration does not imply a certain level of skill or training. Some of the data used in the Global Market Outlook, including data used for indices, charts and graphs, has been obtained from 3rd party providers. The data is believed to be reliable and is subject to revision. The commentary is given for informational purposes and is not a solicitation to buy or sell a security or strategy. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. GFPC has taken reasonable care to ensure that the information is fairly presented. Diversification does not protect against loss.