2017 Forecast

 Financial Forecast for 2017

2017 is shaping up to be an interesting year in many ways. The new administration has shaken up the market and left many wondering what will happen economically in the US. Here we’re going to take a look at our forecast of the financial future for the next year.

What We Predicted in 2016

Forecasted the 10-year Treasury Note Yield would drop below 2% – The 10-year began the year at 2.245%, and then dropped to 1.325% on July 6th.

Forecasted home price appreciation would be 5% – 6% – Actual was up 6.2%.

Forecasted Stocks, as measured by the S&P 500, would decline by 300 points – Stocks did decline by 200 points in February from the start of the year, but then did rally into the end of the year due to optimism from the Trump Election.

Predicted that the Fed would hike only once, while everyone else was forecasting 4 rate hikes. Our forecast of just 1 hike was right on target.

2017 Dynamics

Trump Administration

Inflation pressures remain very tame, but may start to heat up

Home inventory levels remain very low

Modestly higher Rates – Refinances starting to slow

US Manufacturing sector is still lackluster

The Fed is indicating three rate hikes

Stock Predictions

Stocks appear toppy and a bit vulnerable. We are entering the new year with extremely high investor optimism. This is often a dangerous sign.

Prediction: We feel there could be a potential for a Stock market correction. While 20,000 on the Dow seems inevitable, there could be a pullback after breaking through it.

When the Dow broke above 1,000, Stocks pulled back shortly thereafter and it took 10 years to break above it again

When the Dow broke above 10,000, Stocks pulled back shortly thereafter and it took 9 years to break above it again.

We are not saying this will happen again, but often times these milestone levels are tough ceilings.

Changing of the Guard

 

The Fed

Fed Members forecasting three rate hikes

Many economists are predicting four rate hikes

Our Prediction: With the new 2017 composition of the Fed, it will be difficult for them to hike 3 or 4 times.  And we know how much the Fed likes to drag their feet in hiking.  We predict 1-2 Fed Rate hikes.

Housing

Low inventory

Rents rising at 4% per year

Modestly Higher Rates – Won’t derail the housing market

Incomes rising at a pace to easily support appreciation

Demand remains strong

Prediction:5% – 5.5% Appreciation

Rates

Inflation is main driver of rates – Rates will move higher, but not astronomically

Global yields will rise and pressure US yields a bit higher

Infrastructure projects under Trump will be financed by selling additional Bonds. This excess supply is a negative for rates.

Prediction: The 10-year Treasury Note Yield will gradually rise towards 3%

 

 

 

 

 

Download the PowerPoint Below

2017 Forecast

Be sure to Listen to the Audio!

Leave a Reply