The markets seem to revel in making investors look foolish. The Dow, for example, had its worst start to a year in history last January, causing a multitude of pundits to declare the end of the equity bull run. The index ended 2016 with the best annual return in three years.
While the animal spirits certainly have more tricks up their sleeves, there will be opportunities to add to the stellar gains of ’16. My favorites are as follows:
- Buy Stocks
While equities have enjoyed a significant advance since the election, it appears they are poised to head even higher. Better corporate earnings and more a more favorable tax environment are two of the most important drivers of higher prices going forward.
Investors should take advantage of lower prices (if they surface) after the inauguration.
- Bonds Are in Play
One way to take advantage of the current malaise in the bond market is buying closed end funds. Discounts widened in the fourth quarter due to the rate spike. Smaller new issuance of CEFs, along with attractive distributions makes the sector more interesting.
Municipal closed-ends have seen their prices decline more than their NAVs in the last few months, and are worth a gander.
- Avoid the Continent
European equities enjoy better valuations than the U.S. But there are regulatory and structural impediments that will likely prevent investors from capturing any alpha from the region. These include changes that the EU will inevitably face because of Brexit, and the potential exit of other countries such as Italy, Spain, and France.
The morass will likely take years to untangle, and it is difficult to ignore the economic advantages the U.S. are currently exhibiting.