Transamerica Asset Management CIO, Tom Wald, is expecting a dramatic change in the economic agenda under the new presidential administration. His U.S. perspective sees stocks well positioned for the year ahead, rising interest rates, and the return of inflation.
Following the surprise Presidential election of Donald Trump, U.S. markets now await the most dramatic change in economic agendas in more than a generation. While much is still to be determined in terms of implementation and impact on federal deficits, we feel investors should stand to benefit from a more pro-growth and business-friendly environment featuring lower taxes,more fiscal spending and less government regulation.
Potential double-digit equity market gains
U.S. stocks should be well positioned for 2017 based upon a broad earnings recovery, the prospect of a more favorable business environment and a trading breakout from previous levels. As a result, the equity markets could potentially see double-digit gains in the year ahead.
Interest rate rises
Interest rates have entered a new world as we see the combination of enhanced fiscal policy and a Federal Reserve (the Fed) that is behind the curve as resulting in higher rates and a steeper yield curve. We expect the Fed to raise rates three times in 2017 and market forces to push longer term yields higher as well.
Diversification key for yield-based portfolios
Following a strong year in the credit markets, we now view diversification of income strategies as the key to building yield based portfolios. This would include short-term bonds, floating rate notes, high yield bonds, preferred stocks, and high-dividend common stocks. By combining these asset classes, portfolio yield can be achieved at mitigated levels of overall interest rate risk.
After a long hiatus, inflation is likely to emerge in the year ahead as a combination of a tightening labor market, higher fiscal spending, and lower taxes should push consumer prices higher.
International developed markets such as Europe and Japan continue to work through the implementation of Brexit and historically anomalous central bank monetary policy, however individual opportunities remain in these regions. Following five consecutive years of weak investment performance, there is now a burgeoning long term case for emerging market equities.
Disclaimer Investments are subject to market risk, including the loss of principal. Asset classes or investment strategies described may not be suitable for all investors.
The information included in this article should not be construed as investment advice or a recommendation for the purchase or sale of any security. This material contains general information only on investment matters; it should not be considered as a comprehensive statement on any matter and should not be relied upon as such. The information does not take into account any investor's investment objectives, particular needs or financial situation. The value of any investment may fluctuate. This is a general perspective about market volatility and our market outlook and is not intended to predict future events.
Transamerica Funds are advised by Transamerica Asset Management, Inc. and distributed by Transamerica Capital, Inc.