2017 Outlook: Opportunity and Uncertainty

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The Raymond James Investment Strategy Committee weighs in on market trends, economic conditions and the outlook for investors in 2017.
January 4, 2017

Each quarter, the Raymond James Investment Strategy Committee completes a detailed survey sharing their views on the investment environment, and their responses are the basis for a discussion of key themes and investment implications covered in this quarter’s Investment Strategy Quarterly. Read an overview of the key themes below, or download the entire publication for a more thorough view of the markets and the economy.

Headwinds and Tailwinds
Economic and financial market headwinds for the next six to twelve months include a strong dollar, rising interest rates and policy uncertainty. Top tailwinds include a healthy job market, potential for fiscal stimulus and accommodative monetary policy.

U.S. Economy

  • “The pre-election outlook held that slowing population growth – resulting in slower labor input and economic growth – was the ‘new normal.’ Post-election sentiment suggests that we are going to get some fiscal stimulus, but that will likely be ineffective in boosting growth on a long-term basis due to demographic constraints.”
  • “I’m not optimistic that we’ll see a big increase in GDP growth. Economists have been raising their growth fore­casts for next year, but only slightly, so you’re looking at a little over 2% in 2017. We could see a quarter or two of strong growth but it’s not sustainable, unless we increase immigration or get a sharp rise in productivity growth.”
  • “While there are a number of uncertainties in the economic outlook, the largest risk is in global trade. A trade war would boost inflation through higher import costs and disrupt supply chains in U.S. manufacturing. Cooler heads should prevail, but a trade war would undermine economic growth at a time when global trade is already slowing.”
  • “The job market should continue to tighten in the near term, putting some upward pressure on wages, although consumer price inflation is likely to be moderate. The Fed­eral Reserve should continue to gradually normalize short-term interest rates. Increased government bor­rowing should lift long-term interest rates.”

– Scott Brown, Ph.D., Chief Economist, Equity Research

International Equity

Europe

  • “The pollsters got something right by correctly predicting that the ‘no vote’ would prevail in the Italian constitutional referendum. In my opinion, this vote is being blown up as something which massively undermines European stability.”
  • “There is no doubt that a backlash against the European polit­ical elite is happening and clearly there are issues to work through in Italy. Banks remain troubled, the political system is uncertain and the people are unhappy, but my feeling is that the Italians do not want to leave the European Union.”
  • “The direction of Brexit is, to me, quite clear. The timetable is slower, practical realities are showing a ‘soft’ Brexit as the likely endpoint, rather than a more divisive, aggressive kind of breaking up of relations between the UK and the European Union.”
  • “Europe is not perfect – there are going to be bumps in the road. However, versus three or six months ago, there’s a little bit of hope. The catalysts would be more earnings growth and potential political stability with the upcoming elections in Germany and France. Combine this with last year’s big outflows from European equity markets, and opportunities may surface going forward.”

– Chris Bailey,, European Strategist, Raymond James Euro Equities*

China

  • “Concerns over Asia will be centered on China in 2017: the sustainability of growth, the banking system, the property market, and foreign exchange. However, the positive aspects which perhaps people are underestimating are the con­tinuing reforms in China. And they are very impressive.”
    – Chris Bailey,, European Strategist, Raymond James Euro Equities*
  • “Just as labor force issues are coming to the forefront in the U.S. and demographic shifts are hitting home in Europe, China is now in a position where its labor force is starting to decline as well. It’s a common refrain that China will get old before it gets rich. There’s significant risk to all assets coming out of China, and I think it’s very important to keep monitoring that.”
    – Paul Berg, CFA,, Portfolio Manager, Cougar Global Investments*
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