The majority of 2016 looked to be continuing the lackadaisical results of 2015. The S&P 500 from January 2, 2015 to November 7, 2016 generated a lackluster 2% return. The story was the same. Growth continued slowing around the world (See “Eye on the Numbers” on Page 3) and there was nothing in sight that would spur the US, much less the world, to grow. Additionally, there was a great deal of uncertainty surrounding the US elections. The world seemed to pause awaiting the results of the US elections and the corresponding economic policies that would be employed by the inevitable winner. Once the winner was announced, the stock market rallied to all time highs. However, the election overshadowed some major shifts in the direction of our global economy.
The UK (United Kingdom), in a surprise to most, voted to leave the European Union (EU). Furthermore, OPEC finally agreed to reduce their production of oil. This, after their attempt at driving American oil production out of business by oversupplying the world with oil. 2016 was a year filled with surprises and uncertainty, but the first quarter of 2017 should provide us with an excellent roadmap for the coming years.
Looking Ahead
There are 3 areas of focus for the first quarter of 2017. First, is the potential changes as a result of Donald Trump’s Presidency. As I previously mentioned, the stock market has rallied since the election. That rally is based solely on the promise of what he intends to do. Unfortunately, that rally will quickly retreat if his intentions are not realized. He needs to get the “fiscal tire to inflate” by enacting legislation that will inspire companies to innovate and grow. One such policy is the repatriation of the approximately $2.6 Trillion that is held outside of the U.S. This influx of money could provide additional investments in skilled labor and thereby more innovative products and services.
The second lies beyond our borders in the EU. There appears to be an increased likelihood that more countries, in addition to the UK, will be leaving. This will likely cause volatility in the short term for international markets. There will be definitive winners and losers. It is highly likely that those countries that have their “house in order” will thrive, while those that do not will be forced to alter their course.
The final area of focus deals with energy. Recently, the largest oil and gas deposit ever found in the United States was discovered in West Texas. The continued additional supply of oil has kept prices low. I believe this trend will continue. I have mentioned in the past that energy is a primary component needed for growth. Thus, as energy prices remain low, the costs for economic growth remain muted.
The United States and world is in the process of changing direction. If that change of direction spurs innovation and growth, the US and the world will greatly benefit. The European countries that have their “house in order” will benefit greatly, as they will likely follow our lead. That growth would be sustained by the low costs of energy. The recent stock market rally suggests we have many reasons for optimism. However, we will soon know whether that optimism is based on a golden opportunity or a clever salesman has sold us worthless fool’s gold.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
