Outlook for 2017

Happy New Year! 2016 is in the books and what a year it has been. The year saw some major geo-political events that most analysts were completely blindsided by, such as the Brexit vote and the US presidential election. Overall, the market sentiment has shifted to a more bullish side after a flat market the year before (in 2015).

How’d the markets do in 2016? Here’s some chart porn courtesy of Novel Investor.

Outlook for 2017

The US Fed tightening cycle has begun as most market observers are aware. After a promise of 4 raises in 2016, the Fed only managed to raise once in Dec 2016. Currently, the outlook is to raise the rates 3 times in 2017…I guess we will have to wait and see if the Fed will follow through. Meanwhile, other central bankers continue easing monetary policy as the respective economies try to stay competitive.

The lead up to the interest rate raise was the US election and the stock market rally that followed. The DJIA changed directions by 1,000 points overnight the election results were released. By far, the most interesting aspect has been the change in viewpoint from all economists, analysts and the media. Mind you, absolutely nothing has changed fundamentally, except the agreed-upon rhetoric that shifted from end-of-the-world scenario if Trump was elected; to everything-is-amazing outlook. The amount of groupthink has been a sight to behold where 100% of the analysts are bullish on the stock market.

This kind of echo-chamber behavior is usually a recipe for disaster, but there are also some things to like about the US market. Some data suggests that the economy might possibly be improving and inflation might be stoked thanks to fiscal policies under the new government. This is besides the point that plenty of long term issues still need to be addressed. The monetary policy is now giving way to fiscal policy after the failed experiments, even though the central bankers continue to pat their own backs for a job well done. Now that interest rates are turning higher, it dictates international capital flows into the US market, which has given more tailwind to the rise in US$. In fact, the US$ is now testing and hitting 14-year highs.

The US$ bull market is also getting into the later stages of the cycle — although its nowhere close to the end. Some predictions expect this to continue for a couple of years before DXY changes direction. The strong US$ is a double-edged sword as companies that rely internationally for bulk of their revenue face added pressure (a company has to bring in more international revenue to maintain and grow the financials when reporting their quarterly reports).

So, what is my focus in 2017?

Not much has changed in the last few months. Regular readers will be aware that I have moved to a cash-heavy position waiting for the fat pitches. In the meantime, I continue to put money into index funds, so I am still investing regularly and building my portfolio week after week. There are some great ideas thrown around in the Top 2017 Investment Picks that I put together after reaching out to the blogging community. I will definitely be looking at some of those picks closely. As for our portfolio, it currently looks like this:

As it stands, our portfolio diversification is as shown below.

What is your take on 2017? What are your thoughts on the stocks mentioned here? Do you own them or are they on your watchlist? What do you think of the current market levels and buying here? Make sure to leave a comment below as I value reading your questions and comments.

Disclosure: Our full list of holdings is available here.


14 thoughts on “Outlook for 2017

  1. it’s a tough market to predict and I think a lot of it will depend on whether we can see earnings growth in the US unlike the past few years. Otherwise, I have a hard time seeing a ton of growth in 2017 since it’ll just be another year of P/E expansion

    • Haha yeah…markets are almost always hard to predict, but this environment is even harder than normal. It is one of the reasons why I am hedging more now, splitting my portfolio between DGI, index, gold/silver and cash positions. Hoping to see some good opportunities this year.


  2. JC says:

    2016 sure was an interesting ride and 2017 is bound to be as well. There’s a lot to like as well as dislike as far the economy both domestically and internationally. In terms of the stock market who knows what we’re going to see. I was reading on another blog and a question was posed “if you knew beforehand all of the events that would happen economically, politically…but excluding economic/market return numbers, would you have come up with the markets being up double digits in 2016?” The same can be said for every year. Market sentiment, as we saw after the Trump election, can change on a dime. I rarely heard anyone saying the markets/economy would take off before Trump was elected it was all doom and gloom, now that he’s 2 weeks from officially taking office everything is going to be great? Doubtful because there’s still a lot of underlying issues the economy/government/central banks need to work through. Time will tell how 2017 ends up.

    • Thats an interesting way of putting things. For the most part, no one thought that the markets would turn positive after a Trump win. It just goes to show that the market is putting a positive spin on everything and the sentiment remains positive. Until it isnt anymore…

      Heres to good prosperity for all of us in 2017

  3. Hi R2R,
    I’m of the “nobody knows nothing” camp. My crystal ball is too cloudy to predict anything. It looks like you’re fairly well prepared regardless of what happens.

    Is your basic materials allocation so high because of large increases in the values of the gold / silver stocks that you own? I’m just curious as it’s so much higher than the other stock sectors.

    Best wishes,

    • ‘Nobody knows nothing’ is a good attitude to have. Its when we try to follow the leaders and experts and get guided by the media one way or another, we end up with problems. I for one, concur with that ‘nobody knows nothing’ and the future is unpredictable camp.

      Yes, the basic materials is overweight because of my exposure to gold and silver equities. Its my hedge in case this market goes belly up like last decade.


  4. I agree monetary policy in the US is giving way to a pseudo fiscal policy. Consumer sentiment is at highs but holiday spending was a disappointment. Repatriation may be a benefit but only short term – and likely to the detriment of EU policy. How long until the Mexican rhetoric spills northward into Windsor? It’s the same NAFTA treaty. What happens to international investment if my dividends face double taxation? The good news is that drastic change cannot occur overnight. The bad news is what will be tweeted tomorrow. So my plan is to use the strong US dollar to increase my international exposure until the rules change or the US dollar weakens.

    • You touched on a lot of good points there. Re the NAFTA, Canada has indicated that it is willing to go back to the negotiation table after the Trump win. Will be interesting to see how things develop.
      Use your strong US$ to buy international assets — thats the best thing you can do now!


  5. Thanks for sharing your perspective and portfolio. I’m cautiously bullish but wouldn’t be surpassed to see some volatility as the year kicks-off in earnest.

  6. My outlook for 2017 is the same as it was for 2016. I will continue to save for an investment/primary property while reinvesting my dividends into more dividend stocks, all while growing my blog income as much as possible while trying to find a higher paying job away from customers.

    The only wrinkle is that I am now turning an eye towards marijuana stocks, including penny stocks. Though that’s going to be only a very small portion of my overall holdings.

    Hope 2017 finds everyone well. And here’s hoping we don’t lose any more beloved celebrities. RIP Carrie Fisher.

    ARB–Angry Retail Banker

    • Marijuana stocks are getting a lot of tailwind here in Canada with the federal government expected to legalize recreational use in the near future. Lots of speculation and stock prices are being bid up like crazy. Will there be sell-the-news when its official? I dont know. Not going to speculate on that front personally.

      Looks like a solid plan. Keep putting away funds and work towards your long term plans, ARB. I wish you the best for 2017.

  7. Interesting thoughts R2R and it is fascinating to see many unknowns all play our. Record low interest rates going up again, the end of printing money, Trump? Who knows. Long, long term stocks will still be the best, but short term it’s impossible to say.


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