LPL Financial is urging caution for investing abroad in 2017, despite the fact that emerging markets have been improving.
President-elect Trump has said he wants to impose tariffs on imported goods and wants to renegotiate the North American Free Trade Agreement and other trade treaties. These actions would negatively impact foreign economies and markets, making them less attractive to global investors, says LPL in its report, Outlook 2017.
LPL says it would want more stability in the dollar and to see how anti-globalization trends worldwide play out before increasing international investments.
LPL also predicted a modest 2.5 percent growth rate in the U.S. economy for the coming year. A recession is not probable in 2017 because of the gains in consumer and business spending that have been taking place and the pro-growth fiscal policies that can be expected from a Trump Administration.
“The economic recovery that began in mid-2009 may pass its eighth birthday in 2017,” the report says. Two Federal Reserve interest rate hikes are almost assured during the year.
“Inflation, which has been dormant due to falling commodity prices in recent years, may make a comeback in 2017, as above-potential gross domestic product growth and a tightening labor market push up wages and ultimately inflation,” LPL says.
Equities will realize mid-single digit returns for the year, due in part to a pick up in U.S. economic growth. “Small caps may outperform early in 2017, due to the possibility of supportive policies and expanding bank credit under a Trump presidency, while an aging business cycle may favor larger caps later in the year.”
Fixed income is predicted to show a little less promise, says LPL, and will have returns in the low- to mid-single digits. “We continue to favor intermediate-term bonds for 2017, with an emphasis on investment-grade corporates and mortgage-backed securities, given the backdrop of range-bound interest rates.
“Lower-quality fixed income will likely be supported by business friendly policies, in line with our positive view on equities. Therefore, a small allocation to high yield and/or bank loans may make sense for suitable investors,” LPL advises.
“We suggest focusing on your personal milestones, having a plan, and understanding when global events actually matter,” LPL concludes. “The milestones that the markets have passed in 2016, and the new environment we are entering in 2017, may require some course adjustments.”