2017 financial farmers’ almanac

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New calendar years always bring with them a sense of excitement, a sense of expectation and a sense of uncertainty. We believe that with the incoming Trump Administration, this year will certainly not disappoint in any of those areas. Whether you voted for our new President or not and to quote our Nobel Prize winner in Literature, Bob Dylan, we most likely all can agree that “The Times They Are a Changin’.”
As we begin to work our way through this new year, expect several opportunities to present themselves. Below you will find some that we think might emerge. That said, consider these as somewhat of Old Farmers’ Almanac predictions as, like 2016, many events will emerge to alter the current trajectory of the financial markets.
Growth vs. Value – After several years of underperforming, value (cyclical) investments asserted themselves mightily last year as growth (Starbucks, Nike, Mastercard, Apple) took a breather. This coming year we expect that growth will compete on an even footing with value.
MidCap vs. LargeCap – Last year was also the year of the MidCap as the Russell 2000 outpaced the S&P 500. Given the nearly parabolic move of this sector toward the end of 2016 and after perhaps a breather, we once again expect these to outperform. However, as with the Growth vs. Value, we expect this outperformance to narrow greatly as compared to last year.
Continuance of the Gradual Rise in Interest Rates – The yield on the benchmark 10-Year U.S. Treasury Note rose only 0.18% during 2016, closing at 2.45% as compared to 2.27% at the end of 2015. Although President-Trump has yet to elaborate to any great extent on fiscal policy, we nonetheless expect interest rates to rise at a slightly more rapid pace than 2016. Despite the fact that the price of fixed income securities moves inversely to interest rates, investors should take note that most bond funds performed admirably during 2016 as income from these bonds more than offset the drop in price. We expect this to occur once again during 2017.
Continue to Underweight International – The old adage of “a watched pot never boils” accurately applies to the international markets as they relate to the United States (domestic). For years now, international markets have dramatically underperformed the United States despite the incessant cheerleading from investment advisors that there is an imminent “reversion to the mean” about to occur. We have over the past decade and we will in the foreseeable future continue to underweight our allocation to international markets. Given the potential for corporate and individual tax reform, regulatory relief and the repatriation of assets of U.S. domiciled held overseas, we believe that “there is no place like home.” That being said, we do find value in the emerging markets as well as Europe. Despite the fact that we expect to exit 2017 still underweight internationally, we have lately been increasing our exposure there.
Please note that all data is for general information purposes only and not meant as specific recommendations. The opinions of the authors are not a recommendation to buy or sell the stock, bond market or any security contained therein. Securities contain risks, and fluctuations in principal will occur. Research any investment thoroughly prior to committing money or consult with your financial advisor. Please note that Fagan Associates, Inc. or related persons buy or sell for itself securities that it also recommends to clients. Consult with your financial advisor prior to making any changes to your portfolio. To contact Fagan Associates, call 279.1044.

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