Market Commentaries

Few Thoughts For The 2017 US Stock Market

Fortune teller As 2016 is over we make a few thoughts about US stock market in 2017. 2016 was an interesting year and maybe next year will provide plenty of investing and trading opportunities. What were the main events for 2016? The US Elections and the anticipated Fed interest rate hike. So here are few thoughts on what to expect in 2017 for the stock market, US dollar, oil, and gold.

  1. Predictions are both challenging and hard to be accurate. Many analysts thought that in case Donald Trump win, the US stock market would have a steep freefall and this outcome would be bad for the stock market. It turned out that an impressive rally followed and it is still present so far. In 2017 some of the interesting sectors to watch are energy, technology, healthcare, financials, industrials, materials and real estate (as it’s where a new US-elect president has a very significant business operations and interest).
  2. US major Indices at a record high levels. Dow Jones should clear sooner or later the 20,000 psychological mark level, but what is next? Also, NASDAQ will probably clear the 5,500 level and S&P500 now at 2,268 are at highest levels since 2009. This means that many stocks have seen higher prices but their real or intrinsic valuation could be lower than the current one. If we have one or more interest rate hikes in 2017, then financial theory tells us that this is bad for the intrinsic value of stocks, plus many companies will have to face higher interest rate costs if they have significant borrowing. But the real challenge is whether the tax rate cuts and the motives for capital repatriation will occur. Lower tax rates can boost profitability and could offset the negative outcome of higher interest rates.
  3. Initial Public Offerings (IPOs) will be interesting in 2017. Many IPOs made their debut in 2016, and much more are anticipated in 2017 with names like Snapchat, Uber, Spotify, Pinterest, Dropbox expected to go public. In 2016 history showed once more that IPOs are very risky for the majority of investors and not suitable for all traders or investors as they experience large volatility based on expectations and behavioral finance biases such as the error of regret, i.e. not participating in a potential large move or keeping losses and not selling them with hope there will be a rebound.
  4. US dollar has strengthened in 2016, there could be a continuation in 2017. Against major currency pairs, the US dollar has strengthened significantly. The most noticeable gain of US dollar was against Japanese Yen, as USD/JPY pair gained almost 18% from the low price of 99.53 during August 2016 to recent price of 117.50. And not to forget to mention the GBP/USD collapse due to Brexit, from 1.47 level in January 2016 to 1.2280 now. US dollar has appreciated against Euro also. With expectations for higher growth and inflation for the US economy in 2017, we can possibly have one or more interest rate hikes for the US dollar. Higher growth and a more optimistic economic outlook can lead to capital flows in the US economy and this means a possible continuation of US dollar strength in 2017, despite the negative effect it has to exports for most US companies.
  5. Oil prices and gold. Crude Oil prices WTI (NYMEX) this year have ranged between $36 and $54 per barrel. Recent OPEC agreement to reduce daily oil supply has caused an important rally but oil prices will continue to be sensitive to rumors, agreements and climate changes. Higher oil prices can also have a negative effect on global economy growth. Gold has made this year a nice rally for $1050 per ounce to $1350 per ounce and after the US elections it has fallen to current levels of $1150 per ounce. Both these commodities will present opportunities in 2017 as speculators and investors will try to make a profit. But for gold a stronger US dollar and a higher growth in the US economy if we had to make a forecast, then we would be bearish and favor lower levels.
Let’s wait and see, 2017 is so near and could really be another exciting year for the stock market, as the valuation of stocks will have to compete with higher growth expectations and earnings surprises.