My Bet for 2017: 2016 Redux
One of my favorite New Year’s traditions is to read through the predictions that the major investment houses make before the holiday. While the details vary, most years they’re universally positive or negative, and just variations on a theme.
This year though, they are all over the map. Wells Fargo predicts that 2017 will be a volatile year, perfect for stock pickers, with the S&P 500 ending essentially flat—somewhere between 2,230 and 2,330 (it’s about 2,250 today). Credit Suisse puts a slightly finer point on it, predicting the S&P will end at 2,300 after rising wages gives inflation a shot in the arm. Royal Bank of Canada went way out on a limb, predicting that 2017 will be a banner year for stocks with the S&P closing at 2,500.
Such a broad range of opinions is understandable. Our friends across the pond are still trying to work out the mechanics of the Brexit. We have our own unknowns with President-elect Trump and his Twitter account. The Fed is saying that it’s going to raise rates further in 2017, but then we’ve heard that song before. Oil is finally edging higher, but it’s only fetching half the price it was in 2014. So despite what OPEC may say it’s going to do, prices could still break either way. Don’t even get me started on geopolitical uncertainties. We’re starting the New Year facing more known unknowns then I can remember, so I’m amazed anyone’s will to make a prediction.
But, like everybody else, I’ll make a prediction of my own.
I think 2017 will be a banner year for stocks. Yes this bull market is long in the tooth, with surprisingly weak business investment and global uncertainty, but most signs point to a healthy economy, especially here in the U.S. We’re enjoying the strongest labor market in nearly decade, spending is rising and the construction business is strong.
Companies may not be making a lot of fixed investment, building new factories or buying new equipment, but third quarter investment in research and development was the strongest it’s been in a decade. R&D is the read seed corn of American business – and I don’t say that just because I also happen to work on a technology newsletter – but we have always been a nation of innovators.
I just can’t see the economy going off the rails in 12 short months. Now, I don’t know that things will necessarily get much better from here, but if we can manage to keep plugging along as we are, stocks will go up.
The best thing thing we can do is exactly what we have been recommending in Personal Finance and other of our publications: buy into high quality companies, especially when they’re underappreciated by the broader market, and buy more if and when they dip.
So my prediction is that, for investors, 2017 will be much like 2016, hopefully with fewer luminaries deciding it’s a good year to kick the bucket. But you can have a glass (or a few) of New Year’s cheer without having to worry about your portfolio.