The world seemed determined during 2016 to kill off the second-longest bull market in U.S. history and couldn’t do it.
The worst start to a year ever for the stock market was driven by troubles in China that lasted all year and reaction to Federal Reserve’s first interest-rate hike in recent memory. Then came the stunning vote in which the United Kingdom decided to leave European Union. Headlines were dominated by a contentious presidential election that felt unlike anything that Americans previously experienced. The uncertain outcome scared Wall Street for months, and the surprising result sparked fears of a meltdown.
Through it all, the Dow Jones Industrial Average climbed to new highs.
After we spoke with 70 experts, we expect more turmoil in 2017, but the bull market again should survive whatever the world dishes up.
The gains might not be the strongest that investors have seen since the financial crisis of 2008. Since the market bottomed out in 2009, it has maintained the classic definition of a bull market by not falling 20 percent from any new peak that it hit. Experts say that streak might be in jeopardy in 2017, but they expect the market’s string of positive years to continue.
The challenges should be mostly the same as in 2016, only bigger.
If 2016 was the year in which investors worried about how election results in the United States and the United Kingdom turned out, for example, then 2017 is the year in which the fallout from those results hits home as policies and pontificating become actual practice. Likewise, 2017 likely is to be the year when the effect of another rate hike from The Fed—and potentially a third—takes effect and more.
Moreover, investors are caught in the swirl, as global economic and market conditions change. When you look at forecasts for economic growth and read predictions of interest-rate increases, for example, you’ll find a strong case to dump safe-haven investments, such as real-estate investment trusts (REITs).
When it comes to making the right moves in 2017, here is what you should monitor and what you should do when you see the signs.
THE ECONOMY. No one is excited about the prospects for economic growth in 2017, but it’s difficult to find reputable experts who expect a recession, which is defined as two consecutive quarters of a decline in the gross domestic product (GDP).
Instead, 2017 is seen as another year of muddling along, with a slight uptick from 2016. The consensus among analysts who were surveyed by FocusEconomics is that the global economy will pick up momentum and that GDP will increase 2.9 percent in 2017, which would be up a bit from about 2.5 percent in 2016.
Plenty of concerns remain despite the forecast, which revolves most notably around how so many countries use fiscal policy to control their economy. Some experts blame these policies for a slowdown in world trade.
“While weak demand is surely playing a role in the trade slowdown, a lack of political support for trade policies whose benefits could be widely shared is of deep concern,” says Catherine Mann, who is the chief economist at Organization for Economic Cooperation and
Mann warns that the low- and negative-interest-rate fiscal policies that many countries use to stimulate their economy will hinder future growth.
Curb Your Enthusiasm
Housing starts are on the rise and should continue their upward trend in 2017, according to Trading Economics, although new-home sales and sales of existing homes will be down slightly, and that’s before the effect of any interest-rate changes can be factored into the equation.
Mark Fleming, who is the chief economist at First American Financial, says home affordability is the key stat to watch. “It’s less about the nominal price level and more about how much does it cost on a monthly basis to be able to afford a mortgage that lets me buy the home,” he says.
Fleming says housing is the most affordable that it has been in a quarter-century because of the ongoing low mortgage rates. However, he expects affordability to slow in 2017. His advice: “If you are planning on moving and will need to finance that next home with some sort of a mortgage, better sooner than later.”
Meanwhile, much of the economic expansion of the bull run has been on the backs of consumers, and economists share a real concern that personal limits have been reached.
“Consumers have been the main driver of economic growth in the current recovery, [so] an important question is whether households can afford more debt,” says Paul Christopher, who is the head global market strategist at Wells Fargo Investment Institute.