Economists and market analysts around the world will never forget the roller coaster financial activity of 2016. This was a year of great geopolitical uncertainty that was highlighted by the Brexit referendum and the surprising election of New York billionaire Donald Trump as President of the United States. This was the year when the Dow Jones Industrial Average danced around the 20,000 mark, and it was also a year of interest rate increases by the U.S. Federal Reserve.
Despite terrorism, political scandals, armed conflict, and economic corrections, financial markets around the world somehow managed to finish the year 2016 on a positive note. This can be explained by a couple of observations: first of all, the American economy and the U.S. dollar continued their gradual recovery throughout the year. The other observation is that many Asian economies improved their outlook with regard to foreign investment.
Based on the above, the overall outlook for the global economy in 2017 is quite positive for the first quarter. This assumption is based on the anticipation of the fiscal stimulus package that the Trump administration is expected to introduce within the first 100 days of governance. Wall Street and corporate America are feeling pretty good about this future development; however, if the stimulus fails or if the Trump administration suffers from one scandal after another, the second and third quarters of 2017 will be extremely challenging.
Here are some financial trends to keep an eye on during 2017:
Flight to Safety Investments
Gold, silver and select sovereign bonds will likely post gains in 2017 as investors allocate more funds to these commodities and securities; this is an investment strategy that is often referred to as "flight to safety," and it happens during periods of market turbulence.
Economic concerns that could bring turbulence to the markets include the prospects of deflation in Japan and in Europe. There is also the issue of OPEC policy with regard to oil production as well as the socioeconomic and political crisis in Venezuela. Finally, investors will never forget that the reality of a Trump administration means a tenuous U.S. government. For all these reasons, flight to safety investments will likely be very active in 2017.
Improved Consumer Credit
Wall Street has been yearning for a return to the days of debt-backed securities, and the Trump administration may attempt to grant this wish. Ever since the subprime mortgage meltdown and the collapse of the economy in 2008, consumer credit has been more restrictive and investors no longer have incentives to trade debt portfolios.
Donald Trump has vowed to introduce a culture of deregulation, which could mean that exotic debt instruments may once again be traded, but this would require rebuilding credit card and mortgage portfolios. The best way to accomplish this is to offer widespread credit repair options so that consumers can once again be courted by lenders that would be willing to take on more risk knowing that it can be sold again.
American Real Estate
The luxury housing market in the U.S. slowed down considerably after foreign buyers started facing greater scrutiny. In some cases, foreign buyers from Russia have not been able to purchase American real estate investments due to sanctions enacted in the wake of the forced annexation of Crimea and the conflict in Ukraine.
Everything indicates that the Trump administration will ease sanctions against Russia, thereby giving luxury property owners some hope. Moreover, the overall real estate market situation looks positive for the United States in 2017. The higher interest rates may prompt mortgage lenders to relax their underwriting guidelines to capture greater market share, and housing prices are expected to appreciate throughout 2017.
In the end, the first quarter of 2017 will very likely be filled with investment opportunities; however, the same cannot be said about the rest of the year at this time.