Where To Invest In 2017

The bull market is likely to celebrate its eighth birthday under the Trump presidency, but gains will again be middling.

- Anne Kates Smith

AMID A DENSE FOG OF UNCERTAINTY, AN AGING BULL will have to find its footing in 2017. Rarely has the way forward been so obscured by the murky policies of a new political regime, as well as by questions about economic growth, monetary policy and the animal spirits—or lack thereof—of America’s corporate chieftains. Whether the bull finds its way safely will depend on how well markets adjust to the new reality in Washington and whether they can make a transition from being driven by ultra easy Federal Reserve policies to being supported by what in the end must support all bull markets: rising profits across a broad swath of corporate America. // The stock market has been meandering for a year and a half, searching for direction. Unfortunately, we don’t expect a lot of clarity in 2017, at least initially. A Republican sweep of the executive and legislative branches of government argues for substantive changes in government spending, trade, tax and immigration policies. Volatility will be on the rise as investors try to suss out the impact on the economy and financial markets.

For now, it’s reasonable to expect returns in the mid single digits in 2017 based on an improving economy and a resumption of earnings growth (see the chart below). But stocks could end the year wide of the mark in either direction. We see Standard & Poor’s 500-stock index finishing 2017 in the range of 2200 to 2250, suggesting a return of 4% to 6%, including dividends. Figure the Dow Jones industrial average landing near 19,500. (The indexes closed at 2163 and 18,590, respectively, on November 9; all prices and returns in this article are through that date.)