Post 2016 Surge, What’s Next for Stocks?

The rearview mirror for investing has a nice view: double-digit percentage gains for stocks, and much of that accomplished in just the last several weeks of the year. One spark to the fire, of course, came with the surprise election of Donald J. Trump to the presidency and with that, the implication that money is going to be thrown at various sectors in the form of infrastructure spending and tax cuts.

As always the question for stocks is, what’s next? Perhaps a leg down, reports Reuters. The worry is that with such a run, in the face of significant outperformance versus expectations at the beginning of 2016 that equities would show single-digit returns, skittishness will rage. In other words, investors may say it’s time to fold ’em and walk away. Yet again, says Reuters, a poll of investors shows that similarly to the beginning of 2016, the consensus is that stocks will return mid-single digits in 2017.

The newswire said that the year might start out with some initial bullishness, as stock funds based within the United States grabbed as much as $11.8 billion, a fresh re-upping of dry powder that may portend portfolio managers gearing up to keep bids under at least some names and sectors.

As for what might give some pause to enthusiastic buying, at least right away: There are several reasons, among them the widely held belief and evidence that January is among the cruelest months for stocks. Consider the fact that the first month of the year typically, as measured in the past three years, has led to a 3 percent decline in the Standard & Poor’s 500 Stock Index. Valuations are high, too, as trailing price-to-earnings ratios on the same index stand at roughly 25 times. That stands against a backdrop where the Fed is likely to raise interest rates after having done so last month, and China, that great engine of consumption and economic growth, is showing signs of slowing momentum.

Closer to home, said the newswire, investors may be holding off on selling their winners, as they are waiting for concrete information about their tax rates under the Trump administration, working in conjunction with the Republican Congress. Lower tax rates, promised by those politicians, would translate into more money left over to pocket or reinvest.



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