Improving economic conditions, major stimulus in the US and technological transformation are creating the trends that will be the basis of investing in 2017.
This week, we released our annual Investment Outlook, Growth Connectors in 2017. It details our belief in stocks as the engine of portfolio returns in an environment of improving economic indicators, earnings growth and attractive yields relative to other asset classes. In particular, we are moving toward cyclical stocks and away from interest-rate dependent sectors.
It is not all clear sailing, however. Challenges include a divergence in fiscal stimulus measures between Europe and the US, the possibility of fiscal stimulus leading to more assertive Fed rate hikes and inflation and the threat of rising political risk in Europe. Read our Investment Outlook 2017 here.
One aspect of European political risk was the Italian referendum held 4 December. Markets appeared, however, to take the “no” vote in stride.
This week, the European Central Bank, decided to extend its asset purchases beyond the stated end date of March 2017, but at a lower amount. Through March, purchases will continue to be EUR 80 billion per month, but during the extension, from April through December 2017, monthly purchases will be EUR 60 billion.
In the US, the Federal Reserve meets next week and is expected to hike rates, with a few more hikes next year. Across the board and in a large number of countries, cyclical indicators are moving in the right direction. Markets also appear to be reconsidering recent events and becoming more positive regarding the Trump administration. It now appears that Trump’s agenda is more geared to growth than to populist or anti-immigrant issues. The appointment of former military personnel to important cabinet positions supports the view that substantial deviations in foreign policy are unlikely.
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