Wednesday, January 25, 2017

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.

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