Investing

Investors Urged to Stick With Equities, Staying Confident in 2017

The year that concluded in December started with one of the worst opening months for the equity markets on record, followed by a strong rally in Q4 that delivered solid annual returns; what will 2017 bring? 

By John Manganaro editors@strategic-i.com | January 05, 2017
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At the beginning of each year, PLANADVISER is lucky to receive a flood of market outlook commentary from all across the investment services provider spectrum; the resulting mosaic of opinion presents some real food for thought when planning the year of coverage ahead.

One of the most thorough outlooks shared annually comes from Bob Doll, senior portfolio manager and chief equity strategist for Nuveen Asset Management, who offers up a series of predictions pertaining to anticipated market performance over the coming year.  

Doll is quick to warn that very rarely do all of his predictions pan out—but there are a lot of signals one can look to right now for an idea about how the markets may behave in the months ahead, he says. Last year he got “about eight-and-a-half out of 10 right,” including calling the Republican sweep of the legislative and executive branches of the federal government and predicting that markets would “muddle their way through to positive annual returns.”

For 2017, Doll anticipates “a lasting atmosphere of optimistic uncertainty hanging over from the bizarre election cycle we just came through.” He pins half of the late-2016 equity rally to business optimism following the election—mainly tied to anticipated tax reform and deregulation—while the other half of the rally “derived from the positive macroeconomic news that emerged during Q4 but was obscured by the election fight.”

Beyond the backward-looking data, there are clear indicators business leadership and labor confidence are both rising, Doll continues, leading to his first prediction: “U.S. growth will improve modestly and reach roughly 2.5% real GDP growth after inflation.” Tied to this, Doll believes inflation has bottomed out in the U.S., while “consumer confidence will keep punching higher.”

Sharing another prediction,  Doll suggests unemployment will continue to fall in 2017 while wages will continue their slow climb. Treasury yields and interest rates generally can be expected to rise, he predicts, while equity markets “will have the most momentum during the first half of 2017, with price-to-earnings pressure potentially emerging in the second half of the year to dampen performance.”

“Stocks will beat bonds but there will be increasing volatility in each asset class,” Doll feels. “Active manager performance will improve in this environment, but the trend toward passive investing should also be expected to continue.”

NEXT: Setting the tone for 2017