A year ago we asked 14 industry experts and Modern Trader contributors five questions to provide their forecast for markets in 2016.
The first was on the Fed Funds rate, which hadn’t moved from the zero-25 basis point range for eight years (we spoke before the December 2015 rate increase). Responses ranged from no change to 150 basis points.
Six of our analysts were broadly within the 50 to 75 basis-point-range: Alan Bush, Christopher Gersch, Ellen Wald, Matt Weller, Matt Wittenstein and Luke Powell.
When we asked about the performance of equities (S&P 500), there was an even split between those who thought 2016 would be a negative or positive year. While Jay Feuerstein and Carl Larry deserve honorable mentions for coming within 40 or so points, the gold star goes to Bush who predicted the S&P 500 would finish 2016 at 2240, marginally above its closing point.
On the largest fundamental factor affecting the market in 2016, our team focused on interest rates and the election. A perusal of coverage would indicate they were correct, though no one really knows what moved markets.
Crude oil was arguably the most followed market after equities, and our analysts — minus a few incorrect outliers — basically nailed a $10 range between $45 and $55 per barrel. Special callouts go to Alan Rohrbach and Wald who both predicted that crude would fall below $40 before moving higher later in the year.
In our special predictions question, the most memorable call came from Al Brooks who said there was a high likelihood the S&P 500 would take out its October 2014 low. He was right, though in his S&P analysis he expected the index to spend more time in that area instead of using it as a launching pad.
This year we went back to our team, and added a few new names to stick their necks out on what they expect in 2017.
Of the 16 people responding to this year’s survey, more than a third (37.5%) described themselves as a professional trader or investor, a quarter described themselves as an investment industry professional and another quarter described themselves as an economist or analyst.
Which equity sector(s) will perform best in 2017? Why?
Azous: Healthcare will outperform on account of the Affordable Care Act being repealed or rolled back, low valuation, lack of institutional ownership, and prescription pricing not being a core 2017 agenda item of the new Trump Administration.
Bush: Precious metals and raw materials sectors will perform the best in 2017, as the global economy improves more than the consensus view. In addition, the banking sector should perform very well as the yield curve steepens.
Cornell: Healthcare is undervalued.
Gilder: Private tech companies.
Gramza: Financials: With current Federal Reserve policy, I expect the financial sector to perform well. Energy: After the first half of the year, excess crude supply [should be] absorbed the energy sector could perform well. Materials: Trump’s planned infrastructure projects could increase demand for the sector. Industrials: Continued manufacturing increases could have continued strong performance for this sector. Technology: New innovations in this sector will increase demand.
Larry: I like the oil and gas industry, but manufacturing as a whole will be strong. Keep America Great starts with more production for more consumers here in the United States.
Melvin: Regional banks. Lower regulatory costs, lower taxes and recovering economy.
Scaramucci: Financials. More sensible regulation will help credit flow more feely.
Schreffler: Banks, financials and asset managers. Rising interest rates.
Tassoni: Healthcare reversion to the mean.
Weinig: Financials should do well thanks to a friendly political and regulatory environment.
Weller: Materials stocks will be the big winners from rising inflation and new demand for infrastructure improvements in the United States.
Which individual stocks or commodities do you expect will outperform the S&P 500 in 2017?
Azous: CRB Foodstuff will outperform for three reasons:
1. A more supportive pricing environment and less obstructive supply/demand set up into 2017;
2. Technicals in key markets are close to confirmed new bullish trends and 3. Technical-mean reversion relative to CRB Raw Industrials as divergence is at an extreme.
Bush: Gold and silver will outperform this year with the catalysts being increased inflation and geopolitical risks. Industrial commodities, including copper, platinum and crude oil, should perform very well also as the global economic recovery gains traction.
Cornell: Aptevo Therapeutics (APVO).
Gilder: Tower Semiconductor Ltd. (TSEM) and its fully owned U.S. subsidiaries Jazz Semiconductor and TowerJazz is the world’s leading analog chip foundry. As digital electronics spread through the Internet of Things, ingenious analog interfaces, sensors and microelectronic machines become more important.
Impinj (PI) of Seattle makes the sensors on a chip the size of a grain of sand, containing two types of memory and a processor, linked to an RF antenna, all powered by incident radiation (300 million of these chips use the power of a single 60 W lightbulb). These two companies are crucial to the next generation of electronics based on near-zero power usage and real-time operation.
Gramza: Citibank (C), JP Morgan Chase (JPM) and Fifth Third Bank (FITB). The banks will do well with increasing interest rates.
Copper: I expect industrial production will increase globally and with that an increase, demand for copper.
Nasdaq 100: I expect the technology sector of Nasdaq 100 to lead other indexes including the S&P 500.
Larry: I like the midstream sector in oil and gas. Infrastructure starts with dedication to more pipeline and transport of oil goods through the country.
Melvin: Brookfield Property Partners (BPY) is an undervalued world-class real estate portfolio. HopFed Bancorp (HFBC) is a small bank under intense activist pressure and Anchor Bancorp (ANCB) is another small bank under intense activist pressure.
Scaramucci: Industrials metals: They will benefit from an infrastructure buildout and more business activity in general.
Tassoni: Biogen Inc. (BIIB), Gilead Sciences (GILD) and Amgen Inc. (AMGN) all have strong balance sheets, product offerings and attractive valuations.
Weller: Gold: The yellow metal is poised to benefit from rising inflation as a result of U.S. fiscal stimulus and generally easy monetary policy across the globe.
What will be the biggest fundamental factors affecting the markets in 2017?
Azous: The three main fundamental factors that will drive markets in 2017 are growth, inflation, and geopolitics.
Bush: Commodity and wage inflation will surprise on the upside.
Byrne: Ponzi scheme reaching its natural conclusion.
Cornell: Weak growth.
Gilder: Tax rate reductions and the rise in the value of the dollar.
Gramza: Trump presidency, Brexit, Chinese economic growth and the South China Sea expansion heightening tension. There are a host of potential geopolitical concerns: In the Middle East, terrorism; possible European fragmentation; North Korean nuclear weapon expansion and Russia/U.S. relations.
Larry: Three things; Trump, Trump and Trump.
Melvin: Interest rates. Regulatory relief.
Putnam: Rising U.S. inflation, rising U.S. shale oil production, French & German elections and La Nina’s impact on corn and soybeans.
Scaramucci: Tax cuts and infrastructure investment.
Schreffler: Interest rates and the dollar.
Tassoni: Trade policy.
Wald: The biggest fundamental factors affecting the markets in 2017 will be interest rates, the dollar and the price of oil. Supply and demand will still be the most important factors impacting the price of oil, thought speculation will continue to induce some volatility. However, strong demand and OPEC’s willingness to maintain a floor on prices will mean a general, overall trend upwards in price during 2017.
Weinig: Change in political landscape.
Weller: The return of fiscal stimulus, especially in the United States. The Federal Reserve finally has the opportunity to normalize interest rates (slightly) more aggressively.