Friendly equity advice for 2017

[WVPATX]

I have read 15 analysts expectations for 2017. All of them predict the S & P will increase between 5% and 15%, most on the upper side. They expect a strong dollar. Expectations of rate hikes was mixed. Some suggested that Yellen will pull back from the 3 potential hikes if the dollar remains this strong. Others said she goes through with her plans hoping for a soft landing out of this easy money policy.

Having said this, the question is when to buy? The S & P is currently trading at 19 times earnings, that is very pricey. The normal range is approximately 16 times earnings. I haven't looked at forward earnings and won't do so until the corporations report in late January and early February. Personally, I am going to wait out the first quarter and then enter the market in a weighted average fashion. The tax cuts took Reagan 8 months to get enacted. Even if Trump gets it done in 6, that is still June/July. These excessive regulations can be undone far more quickly and will be stimulative. And the repatriation of profits will also take time as will the infrastructure bill of $1T.

I think trading is choppy in the first quarter and then beginning late second quarter begins to rise. The hot sectors seem to be Financials (assuming continued rate hikes), technology (which benefits greatly from repatriation), Healthcare which will benefit from Obamacare elimination, Energy, especially nat gas, and Emerging Markets. I even expect coal stocks to make a bit of a comeback.

Longer term bond prices have regressed recently and I think they are a better barometer of performance than the equity markets. This is why I think sitting out for a while makes sense.

 

[va87eer]

It's a good time to be patient. While history and most analysts think the market is more likely to go up than down in 2017 I also think the downside risk is higher if we do get into a selloff. With P/E above historical norms, interest rate hikes likely on the way, and a long runup without a correction, I'm wary of going all in.

Probably the most scary thing is 15 of 15 analysts predicting pretty big gains under such conditions. That usually happens near a market top.

The problem is how to make any money in this environment. Bonds don't seem real attractive with interest rate hikes coming.

Trying to be patient....

 

[WVPATX]

It's a good time to be patient. While history and most analysts think the market is more likely to go up than down in 2017 I also think the downside risk is higher if we do get into a selloff. With P/E above historical norms, interest rate hikes likely on the way, and a long runup without a correction, I'm wary of going all in.

Probably the most scary thing is 15 of 15 analysts predicting pretty big gains under such conditions. That usually happens near a market top.

The problem is how to make any money in this environment. Bonds don't seem real attractive with interest rate hikes coming.

Trying to be patient....

I think it much more likely the market goes up rather than down, although people have lost millions making mistakes like that prediction. A lot of stimulus coming, even in a rising interest rate environment. I would pick sectors that have underperformed and will do better with rising interest rates, health care changes, tax rate reductions, repatriation, regulatory relaxation, etc.

Financials, Health Care, Tech, Energy fit that those categories. I read a compelling article today on Utilities. I like emerging markets because of the rising dollar. I would stay away from industrials, they have already run up on infrastructure spending. I would also stay away from consumer staples and consumer discretionary. But that is strictly my opinion.

No one can time the market, so I think sometime after the first quarter is reasonably safe. But I also think you might miss some upside, particularly in energy, if regs are eliminated and pipelines approved quickly.

One thing I try to do is pick dividend payers. If you're a long term investor, you can sit on the sidelines with strong balance sheet stocks, watch the market go up and down and still get paid until you get a good price to sell.

 

[va87eer]

It won't be long before we see what the 2018 budget looks like. It will be interesting to see how the balance of infrastructure investment, military investment, tax cuts, and budget deficit are managed.

 

[WVPATX]

It won't be long before we see what the 2018 budget looks like. It will be interesting to see how the balance of infrastructure investment, military investment, tax cuts, and budget deficit are managed.

After Obama, I don't think Dems can be concerned about deficits from Trump. They remained silent under Obama. But conservatives can and should be. Repatriation penalty will help ($300B). Infrastructure must be spread out over many years, at least 5 in my opinion. Otherwise, you can't control the projects. Tax cuts are generally stimulative. GDP grows as does tax revenue, even with lower rates. De-regulation should also help businesses and GDP grow. I agree that short term deficits will continue. If we can get GDP growth to 3.5% or even slightly higher, we can bring the budget back into balance but it will take 5 years or so to accomplish. Assuming no recession or extraordinary event, of course.

 

[va87eer]

I'd be very happy to see a balanced budget in 5 years.

 

[WVPATX]

I'd be very happy to see a balanced budget in 5 years.

It's aggressive and all depends on returning to robust growth again. The media would have us believe we are in a "new normal" economically. I assume they mean the Japanese model. I don't agree. I think we can return to strong growth again. One thing that is important, and that is immigration and foreign investment. We need to increase immigration of immigrants with strong skills, upwardly mobile and/or capital for investment. I think we can attract lots of foreign capital by becoming much more business friendly.

 

[DvlDog4WVU]

It's aggressive and all depends on returning to robust growth again. The media would have us believe we are in a "new normal" economically. I assume they mean the Japanese model. I don't agree. I think we can return to strong growth again. One thing that is important, and that is immigration and foreign investment. We need to increase immigration of immigrants with strong skills, upwardly mobile and/or capital for investment. I think we can attract lots of foreign capital by becoming much more business friendly.

The reality is the first quarter we go over 3% Obama will quickly become a memory.

 

[WVPATX]

The reality is the first quarter we go over 3% Obama will quickly become a memory.

If Trump's policies succeed in returning us to 3% or greater growth, it should put a nail in the coffin of Keynesian economics, high taxes and high regulations. Reagan created a blistering economy with pro-growth policies of a strong, stable dollar, low taxes and low regulations. He grew the military with significant spending for sure, which was stimulative, but the economy roared after the 1982 recession brought on by high interest rates needed to bring down the sky high inflation rates from the Carter era.

If Trump's similar pro growth policies succeed in doing something similar, it's hard to argue against supply side economics. Particularly if the middle class median income grows just as it did under Reagan.

 

[atlkvb]

I have read 15 analysts expectations for 2017. All of them predict the S & P will increase between 5% and 15%, most on the upper side. They expect a strong dollar. Expectations of rate hikes was mixed. Some suggested that Yellen will pull back from the 3 potential hikes if the dollar remains this strong. Others said she goes through with her plans hoping for a soft landing out of this easy money policy.

Having said this, the question is when to buy? The S & P is currently trading at 19 times earnings, that is very pricey. The normal range is approximately 16 times earnings. I haven't looked at forward earnings and won't do so until the corporations report in late January and early February. Personally, I am going to wait out the first quarter and then enter the market in a weighted average fashion. The tax cuts took Reagan 8 months to get enacted. Even if Trump gets it done in 6, that is still June/July. These excessive regulations can be undone far more quickly and will be stimulative. And the repatriation of profits will also take time as will the infrastructure bill of $1T.

I think trading is choppy in the first quarter and then beginning late second quarter begins to rise. The hot sectors seem to be Financials (assuming continued rate hikes), technology (which benefits greatly from repatriation), Healthcare which will benefit from Obamacare elimination, Energy, especially nat gas, and Emerging Markets. I even expect coal stocks to make a bit of a comeback.

Longer term bond prices have regressed recently and I think they are a better barometer of performance than the equity markets. This is why I think sitting out for a while makes sense.

I think the market to watch PAX is what happens to small and mid cap funds. Short term interest rates will also effect the bond market and corporate earnings projections for the first qtr will also impact institutional investors looking for stability for all of that cash companies both have now and are just holding, as well as what's expected to come back ashore once Trump and the Repubs get repatriation rolling.

I heard Speaker Ryan yesterday say the overall tax on repatriated funds will be around 5 3/4%.....he said it'll be a combination of some lower rates on cash, but even lower rates on other things like assets and proprietary holdings. If that's true...there won't be any more need to try and hide any money earned, and small cap funds will get a HUGE boost relative to earnings because of all the liquidity suddenly flooding the market looking for places to grow quickly.

Good times.

 

[atlkvb]

if the middle class median income grows

This is the Rx for a sustained Republican majority. If incomes for middle wage earners continue to grow, the Left has nothing more to offer them besides more class warfare.