Stephen Auth, CFA and Chief Investment Officer, Equities, shares his expectations for 2017 including:
- The effect of the Trump administration and Republican Congress
- Fiscal stimulus vs. structural reform
- A new phase for the bull market
- "Climbing the Wall of Hope" through 2018.
"Climbing the Wall of Hope"
Since Nov. 8, something has palpably changed about the psychology of this market, and of corporate America. Collectively, investors seem to have dropped their worry beads and shifted instead to dreaming, hoping about a brighter future under the new administration. Tax cuts leaving more money in the hands of the private economy. Deregulation cutting the cost of doing business. Infrastructure spending improving economic efficiency. And most importantly, “tone at the top” encouraging the private sector to grow, take risks, to make money, to create jobs, to be capitalists. Indeed, capitalism is suddenly fashionable again.
For markets, what makes a wall of hope powerful is that it gives investors the patience to see their way through the inevitable speed bumps that will come. I don’t think that traditional political analysts (most of whom got the election wrong, by the way) get this. Trump’s corporate tax bill, for instance, is likely to flounder for some period of time in Congress, as the usual haggling starts about which tax exemptions get eliminated in return for a simpler code. But maybe the market won’t overreact to this delay this time, hoping instead that Trump the deal-doer will figure out a way to cajole, embarrass and/or reward stray congressmen into passing his bill.
We remain confident that a new phase of the great secular bull market has begun, one guided by hope, not worry. In this phase, we expect nominal GDP growth to accelerate by almost 2 percentage points to 5.5% by 2018, with earnings growth to follow.
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