Derek, what can investors expect in 2017?
Every year I like to offer some predictions as far as what the New Year may bring. With 2016 firmly behind us, it is time to look forward to see what may be coming. While my crystal ball remains foggy, I’ll share some insight based on what the economic picture may be hinting at for the months ahead.
Before diving into 2017 we can look back to see how my 2016 predictions finished up.
To simplify, I expected the U.S. economy to strengthen (it has), I thought the US dollar would soften (it hasn’t), I expected interest rates in Canada to stay low (they have), and the U.S. to increase interest rates (they did).
I thought real estate values in Canada would decline, when they in fact took a jump higher. Lastly, I hoped to see oil reach $50 by the end of 2016 – which it did nearly on cue.
At this point, it seems the U.S. economy is poised for another strong year.
The tailwinds from the election should continue to push the red hot U.S. markets and I expect all indices to end the year higher than where they are today.
This means that the Dow will break 20,000. An expanding U.S. economy should bode well for cyclical stocks such as technology and energy, while rising interest rates should benefit the banking and insurance sectors.
The one key factor in the United States will be how Donald Trump will be received as he enters the presidency. I expect Trump to increase fiscal spending which means expansion to the defence industry and infrastructure stocks.
While he remains a wild card, his policies should be helpful to the economy.
After a shaky start to 2016 the Canadian markets pushed notably higher by the end of the year. I expect 2017 to be a good year, but not nearly as positive as 2016 proved.
There is an improving economic picture across the globe which should be beneficial.
A higher demand for commodities including oil and base metals should prop our market higher, while our banks should benefit from higher rates south of the border.
I expect the Toronto Stock Exchange to reach a new all-time high in 2017; in fairness we are nearly there today.
Similar to my prediction in 2016, I do expect a weaker real estate market in Canada for 2017. Sales may decline somewhat as markets like Toronto and Vancouver cool, while activity may actually pick up closer to home in Alberta.
I wouldn’t expect to see surging prices in our province, simply a return to growth. Expect interest rates to increase modestly in Canada, which may keep buyers away from the market.
Finally, the price of oil should remain firmly in the headlines as we progress in 2017.
I expect oil to remain range bound between $50-$60 through the bulk of this year as nations in OPEC continue to trim their production and the U.S. and Canadian markets get back to work. The supply glut will slowly ease, but I don’t expect a dramatic recovery in the price. With this all in mind, I wouldn’t be surprised to see oil touch $65 by the end of this year. That said there are far too many factors which may change this prediction very quickly.
Long-term investors need not think about what is to come in 2017. In fact, they should embrace the ride of the markets whether it leads to new all-time highs, or sudden drops and lows. Their investment strategy should be well defined and be used as a guide during any market scenario. My belief remains firmly in the camp that long-term investors prevail over the decisions made hastily by short-term investors. In either case, it is interesting to forecast what may come but my best advice remains to stay focused on your objective.