(The source of the following is BNY Mellon Weekly Fixed Income Market Commentary December 7, 2016, Investing Haven “Bond Market Outlook for 2017”: “Investment Outlook” Bill Gross, Janus Capital Group.)
There are currently two key drivers of the market. One is the election of Donald Trump, and the other is central banks. The banks are significant, because they are the largest holders in the debt market.
From the U.S.: Interest rates increased one-quarter of one percent to 0.75% in December 2016.
From Europe: We expect the ECB to extend the current Quantitative Easing buying program. (The ECB is currently buying 80 billion euros per month. The expiration date is March, 2017.)
Why is this important? It is important because increasing interest rates impact stocks, gold, commodities, and currencies. Based on recent signs, rising rates have a negative impact on gold and a positive influence on the dollar and financial stocks.
As we work to define the impact in 2017, we will be watching the 20 year bond market (TLT) and what happens to other sectors when the TLT reaches amounts around the $120 level. TLT is an Exchange Traded Fund (ETF) that tracks the 20 year Treasury.
Now, let’s turn to the President. This may well be a mixed-bag for stocks and bonds. Clearly, certain aspects of the Trump plan are good for stocks. This plan includes tax-cuts, deregulation, and fiscal stimulus of various types. On the flip side, the strong dollar will limit exports, and anti-globalization policies which restrict trade will negatively impact corporate profits.
Now, more than ever, for our readers who are not yet clients, we invite you to join us in a conversation to confirm your portfolio is properly allocated to meet your goals and has also considered these important influencing factors.
To our clients, we will continue to work on your behalf to create portfolios taking appropriate risk while also reaching your goals for growth and income.
Until next time, Live with Purpose!
Barbara A. Culver
CFP®, ChFC®, CLU, AEP®