As we start into 2017, here are some comments on what investors should consider in the coming year.
Investors may benefit by taking a more cautious approach, but at the same time realising it’s not all doom and gloom out there. There are three key trends to consider relating to equities; fixed income, earnings and economic fronts, with the consensus that prospects for 2107 are more favourable than at the beginning of 2016.
- Canadian markets will continue to be driven by oil prices which are now well up from the recent low of $27. For 2017 this is expected to range up to $58 due to declining US oil production and the OPEC initiative to limit production. Our loonie is forecast to be somewhere between US$0.72 and $0.74, plus there’s a consensus on the decoupling of oil prices and the Canadian dollar in 2017. Canada is still a resource-based economy and our business prospects rise or fall with oil and natural gas prices, something that seems to elude our politicians.
- Global Reflation: Results from the US election should mean a more business friendly government now controlling both houses and the presidency, between infrastructure spending, repatriation of US dollars and businesses. The US consumer is in better shape financially, unemployment is low, and household debt levels and savings have improved. This is also impacting Europe and Asia which bodes well for another year of positive returns.
- US interest rates will trend up in 2017 as the US Federal Reserve works to control inflation. Yields will move up across the spectrum of fixed income options but it won’t be dramatic. Returns for the fixed income portion of one’s holdings may be moderated by holding a diverse range of fixed income options.
Where to go from here? The prevailing view on real estate is for cooler housing markets everywhere in Canada except Toronto, where only direct government intervention can cool this trend. Add to this slower consumer spending in 2017, a maximum 2% real growth for the rest of the year, plus no interest rate action from the Bank of Canada predicted for the next 18 months.
One factor we will all have to consider in Alberta is the new Carbon Tax imposed on us for 2017, plus the GST on it as well. We will have to wait and see what the trickle-down effect will be. In the end it will impact everything we buy, as businesses will have no choice but to pass it on. In the long term we could be facing energy price increases of the magnitude faced by Ontario consumers.
This year could very well create hardships for low income families, seniors on fixed income, and small businesses with tight margins and increasing minimum wage costs.
Approach the coming year with cautious optimism. Watch your discretionary spending and run a tight ship. Set up a budget and build rainy day savings in 2017. If you need advice or help, seek out a trusted financial professional. Remember that investing or saving is like planting a tree; the best time was 20 years ago, but the next best time is to start today!
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