Investment Insights: Excerpts from our 2017 Outlook

Wade Balliet
Posted by Wade Balliet
Investment Strategy

The following are excerpts from the 2017 Outlook report produced by the Global Investment Management team. For the full report, click here.

Aerial view over large body of water with tanker ships in the distance, with the sun setting behind mountains under a cloud-streaked sky.The president-elect’s victory and the Italians’ declination of reform in the waning months of 2016 was a final crescendo for a central theme of 2016, populism. Additionally, stresses in regions like the Middle East and East Asia were accompanied by growing inequality and unrest, while concerns over the refugee crisis and a snowballing income gap were key drivers in the result of Brexit.

Despite headlines on these topics injecting volatility into the markets this year, the U.S. equity markets have remained surprisingly resilient. Unfortunately, the Global Investment Management team does not forecast this for the equity market or the fixed income markets into 2017. Volatility will likely tick up as uncertainty builds, resulting in the opportunity for some boiling points in markets. We expect a minor correction in the first half of the year.

Here are some of the forecasted themes for 2017 from our report:

* Next year will see a tightening of monetary policy and a shift toward fiscal policy. Although monetary policy will continue to be accommodative by historic measures, fiscal policy will take some of the weight off of its monetary cousin.

* The U.S. dollar will continue its relevance as a major economic and investment factor to contend with throughout the year. Emerging markets will likely suffer from currency movements and reduced capital infusions.

* Although international equities may be cheap relative to U.S. equity markets, the discount is in line. Until fundamentals turn further, a neutral to moderate overweight is warranted. As in the U.S., it took time for monetary stimulus to take effect; it will take even longer abroad.

* Global equities will outperform global bonds as global demand picks up around the world and interest rates remain anchored around zero in a majority of developed markets, with the U.S. actually seeing rate increases.

* Active management will be key as global markets decouple with policy and as political movements take different paths.

For more details, please read the full 2017 Outlook report.

The economic and market forecasts presented in the report are for informational purposes as of the date of the publication. There can be no assurance that the forecasts will be achieved. Please see additional disclosures at the end of the report.

Investing involves risk, including the possible loss of principal and fluctuation in value. Economic and market forecasts reflect subjective judgments and assumptions, and unexpected events may occur. Therefore, there can be no assurance that developments will transpire as forecasted. Nothing in this newsletter should be interpreted to state or imply that past results are an indication of future performance.

Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.

International securities involve additional risks such as currency fluctuations, differing financial accounting standards, and possible political and economic instability. These risks are greater in emerging markets.

Diversification and asset allocation does not ensure a profit or guarantee against loss.

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