December 2016 Commentary

We continue to expect a short term correction in the market within 2017 to follow the rally experienced in 2016. Long term growth, however, is projected if the Trump Administration can follow-through on the President-Elect’s fiscal policy proposals and infrastructure initiatives. In theory, his proposed guidelines could increase the bottom lines of companies throughout the US while his aggressive fiscal spending could help increase GDP. Though these proposed changes may help many corporations for 1-2 years, the Fed, as indicated in previous meetings, will meet this high spending with increased interest rates in the coming year. On a macroeconomic level, the combination of both aggressive fiscal policy and rising interest rates poses a unique investment opportunity in international companies. The basis for this opportunity is the expected appreciation of the USD against other major currencies. The USD is currently at a 14 year high and is expected to rise even higher. With this in mind, many companies that supply the US market with goods and services will see strength in their top line as these goods will become cheaper versus their domestic competitors. Another industry expected to grow is the travel industry as the more consumers are able to afford travel abroad. This in turn grows the income and visibility of international markets and companies. In the coming year, the investment team expects much more attention to international markets as foreign companies report better than expected top and bottom line growth.

In summary, and with potential long term effects still yet to be determined, there could be major consequences as companies begin to pay off debt in 2018 and 2019 that accumulated during the low interest rate periods. Furthermore, one of the most significant political threats to navigating this market in 2017 is not from any fiscal policy, but from the use of political rhetoric both here in the US and abroad. Regardless of party affiliation, the President-Elect’s antagonistic and imprudent use of social media sites like Twitter will continue to sway industries and specific companies at a moment’s notice.


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