Seventeen Predictions for 2017
By Andrew Dassori
In our predictions for 2016 we recommended that investors hedge when they had less than a 50% chance of being correct and invest where they had a clear, repeatable edge. After a year of surprises, we hope this was useful advice and recommend the same disciplined approach to markets today. For considerations outside of the investment process, our predictions for 2017 are listed below. We wish you great health, happiness, and luck in what could be an unpredictable year.
- Interest rates will rise by less than what is forecast by the Fed
Once again, the Federal Reserve will underestimate structural headwinds to higher rates and ‘lower for longer’ trades will benefit from rolling down the yield curve.
- Money held offshore will return to the US
The new administration and Congress are working on tax reforms to bring corporate dollars onshore, and the loophole for hedge fund managers’ offshore performance fees is closing at the end of 2017. Share buybacks are a likely outcome for companies most affected by this change, and general repatriation should provide support for domestic asset prices.
- USD strength and protectionism will be a hindrance to growth
In July of 2015, concerns over the effects of dollar strength on growth were highlighted by the Federal Reserve Bank of New York. Since then, the USD has strengthened on a trade-weighted basis by 9.46%.¹ A resulting decline in export competitiveness combined with increasingly protectionist policies would decrease growth prospects for 2017.
- Economic policy will shift in the direction of Ayn Rand
As President-Elect Trump fills his cabinet with business leaders, a common thread of laissez-faire capitalism has emerged. Backed by Rand’s ideology, free market principles are set to expand as symbols of individual freedom.
- Private equity will outperform public equity
The S&P 500 begins 2017 with a cyclically-adjusted P/E ratio² higher than it was in 2007. With valuations stretched, public companies will reach for growth through acquisitions, driving demand for targets held by private equity funds.
- The next bull market will be in geopolitical risk
A new approach to US foreign policy will combine with China’s rise and uncertainty in Europe to set the stage for geopolitical tension. In this environment existing agreements are negotiable and a wide range of outcomes is possible.
- FX’s TV series, the Americans, will see its largest rise in ratings
Who knew a show about cold war era Russian spies could be so topical? After four seasons of modest ratings, the recent expulsion of Russian diplomats will propel season five’s popularity to match its critical acclaim.
- Populism will dominate the election cycle in Europe
Following Brexit, the US election, and the biggest refugee crisis in history, populism will continue to spread across Europe, starting with the Dutch election in March.
- Universal basic income will be among the year’s most widely debated topics
In the age of automation, joblessness will be driven by robots, not Chinese labor. Displaced workers need a solution outside of the current welfare state.
- Tim Tebow will retire from baseball
It was fun while it lasted, but a slash line of .194/.296/.242 for a 29-year-old in the Arizona Fall League isn’t what major league scouts are looking for. Tebow’s next move is likely back to television or a coaching staff near you.
- Amazon will come under fire as its market share increases
Jeff Bezos’ war of words with Donald Trump will not be forgotten. While his ownership of the Washington Post has been in the spotlight, Amazon is the larger target.
- The next iPhone will feature virtual reality
Smartphone competitors Samsung and Google beat Apple to market with virtual reality. There could be good reason for this if a superior product is in the pipeline.
- Tech IPOs will rebound
We were right about last year’s IPO slowdown and now will take the other side. With a pipeline that includes Spotify, Airbnb, Uber and Vice Media, firms are ready for fresh capital to be raised through public offerings.
- Robo-advisors will become more sophisticated
Automated investment platforms have offered only basic options thus far, with most based on the same ‘modern portfolio theory’ Harry Markowitz described in 1952. As firms with advanced investment processes enter this market, individuals will benefit from strategies that fit better with their goals and needs.
- Tiger Woods will win his first tournament since 2013
It has been a rough road in recent years, but after 24 birdies at last month’s Hero World Challenge, Tiger is a prime candidate for a comeback.
- Homes will become artificially intelligent
AI-based assistants entered the home in 2016 as Amazon sold 5.2 million Echo devices. Now that Google’s product has arrived, competition for artificially intelligent services is inevitable. Homes are the ideal place for the internet of things; with third-party vendors set to expand AI capacity, the places we live will become smarter and more connected.
- Hedge Funds will remain under pressure while ETFs continue to grow
Public pensions, endowments, and other institutional investors in hedge funds can be slow to move. As ETF strategies offering similar exposures expand, these investors will have more reason to make changes in the direction of lower-cost solutions.
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¹ Federal Reserve US Trade Weighted Broad Dollar Index from 7/17/2015 through 12/23/2016
² Shiller PE ratio
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