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March 21, 2017 at 10:50 AM
Just like the markets, the NCAA college basketball tournament is full of surprises.
LPL Financial Chief Investment Officer Burt White, though, says that such developments — namely the second-round exit of Duke and Villanova — make things exciting.
As for the markets, White and colleagues have put together their “Sweet 16” bracket for stocks, identifying keys factors affecting them.
“While the path for several policy-related areas is uncertain, we still expect a solid year for stocks in 2017 — potentially even slightly above our year-end S&P 500 target of mid-single-digit gains, depending on that policy path,” he explained in a report released Tuesday.
Here is a quick rundown of what White and the investment research team at LPL anticipate for the rest of the year. (They didn’t share their NCAA basketball predictions, unfortunately.)
1. Economic growth, positive: Near 2.5% growth in U.S. gross domestic product in 2017, roughly in line with long-term averages, supported by improving business investment, steady consumer spending gains and pro-growth fiscal policy; leading indicators and the yield curve suggest a low probability of recession over the next 12 to 18 months; economic data have broadly surprised to the upside in the U.S. in recent months and are improving overseas.
2. Fed policy & interest rates, mixed: The Federal Reserve should hike interest rates twice more in 2017; its acknowledgement of the improved economic outlook and plan to hike rates gradually are encouraging, but there is still a possibility that the Fed spooks markets by speeding up its timetable.
3. Inflation, mixed: The Consumer Price Index posted a 2.7% year-over-year increase in February, accelerating from January’s 2.5% reading amid increases in energy prices; further acceleration in inflation presents some risk to stocks, though we expect it to be contained.
4. Geopolitics, uncertain: In Europe, the anti-EU party failed to wrestle power from the current Dutch prime minister, but French elections in April may spark another wave of structural concerns; China’s debt problem remains a risk; and military conflicts overseas could disrupt markets at any time.
5. Earnings, positive: The latest reading, near 58, for the ISM Manufacturing Index suggests continued earnings growth; fourth-quarter earnings season was generally good, with high-single-digit S&P 500 earnings gains and supportive guidance; better economic growth and supportive fiscal policy later in the year offer potential upside.
6. Valuations, long-term negative: Rich valuations are a concern, though valuations are not good predictors of near-term stock market performance; moderate inflation and low interest rates are supportive of above average valuations in the short term.
7. Sentiment, mixed: Analysis of investor sentiment reveals signs of increasing worry, but from a contrarian perspective, this could be a positive sign; there are signs of optimism, though, and LPL is not seeing the type of exuberance observed at previous stock market peaks.
