As Donald Trump goes, so goes the stock market.
That, in a nutshell, is how local investment advisers see 2017 shaping up.
The president-elect, if he’s able to deliver on some of his pro-business tax and regulation promises, could be a powerful force on Wall Street in 2017. If he can’t, Trump’s failure to cut taxes, ease regulations could lead to widespread disappointment among investors who now are counting on his promises becoming reality.
“The postelection rally has carried stocks to record high on investor expectations of increased government spending on infrastructure, tax cuts and a rollback of regulations,” said Cynthia E. Vance, managing member at Jensen, Marks, Langer & Vance, a Buffalo money management firm.
Much of the Trump rally also is in the books because of what’s taken place since the election, the advisers say. Those gains could limit the potential upside now that the calendar has turned to 2017, they say.
They also fear that Trump’s talk about renegotiating the nation’s trade agreements could spark a trade war.
“When he becomes president and the honeymoon is over, what happens?” asked Tim Johnston, the president of Sandhill Investment Management, a Buffalo investment advisory firm.
As a result, most of the 10 local investment advisers surveyed by The Buffalo News expect only modest gains in 2017, with the average forecast calling for a 6.1 percent rise in the Dow Jones Industrial Average and a 7.4 percent increase in the Nasdaq Composite index. Individually, the advisers have vastly different views.
But individually, the advisers have vastly different views, ranging from the prediction that the Dow will drop by 11 percent from Cornell Capital Management’s David Hartzell to the forecast from Arbor Capital Management’s Gerald T. Cole that the Dow will jump by 15 percent.
“We don’t see anything negative on the horizon. We don’t think a recession is imminent,” said James P. Julian, executive vice president at Robshaw & Julian Associates, an Amherst money management firm. “But our new president does not have a political track record on which to base our expectations.”
Here’s a look at how each member of our panel of investment advisers sees 2017 playing out.
Kevin E. McKenna
President, Main Line Capital Management
2017 Dow forecast: 21,250, up 7.1 percent
2017 Nasdaq forecast: 5,950, up 9.4 percent
Why the market will rise: “I expect to see new stimulus from “Trumponomics” and GDP growth rates slowly accelerate into 2017,” McKenna said. “2017 should see new efforts directed at rebuilding of infrastructure assets, lower tax rates on individuals and corporations and the repatriation of corporate cash held overseas,” he said. “All of this combined should allow markets to overcome expected – and hopefully short lived – negative pressures.”
Watch out for: “Valuations are already stretched,” McKenna said. “We should see better corporate earnings ahead, but it’s widely believed that fourth-quarter 2016 and first-quarter 2017 might be a bit peckish.”
James P. Julian
Executive vice president, Robshaw & Julian Associates
2017 Dow forecast: 21,024, up 6 percent
2017 Nasdaq forecast: 5,765, up 6 percent
Why the market will rise: “We don’t see anything negative on the horizon. We think the economy will have a decent year, and that will translate into a positive environment for earnings,” Julian said. “We also look for a little bit of an industrial renaissance.”
Watch out for: Trade wars if President-elect Donald Trump, despite a Cabinet filled with pro-business advocates, follows through on his campaign promise to redo trade deals. “The new president is an unknown commodity,” Julian said. “If he follows up with tariffs and trade wars, it could undo all of the positive things he’s done.”
Cynthia E. Vance
Managing member, Jensen, Marks, Langer & Vance
2017 Dow forecast: 21,222, up 7 percent
2017 Nasdaq forecast: 5,710, up 5 percent
Why the market will rise: “We are continuing to see a rotation from bonds into stocks,” Vance said. “With expectations of higher interest rates, higher inflation, and higher government deficits, the bond market is taking it hard. “Trumponomics,” coupled with expected Federal Reserve interest rate hikes throughout 2017, has likely put an end to the 35 year bull market in bonds.”
Watch out for: “Stocks are not cheap and we are still expecting market volatility in the coming year,” Vance said. “Trump is such a wildcard. I don’t think the market is going to trade on valuations – it will be Trump dependent, and 12 months from now, we’ll see what we get on everything from trade policy to corporate tax reform.”
President, Anvil Investment Partners
2017 Dow forecast: 22,610, up 14 percent
2017 Nasdaq forecast: 6,037, up 11 percent
Why the market will rise: “Optimism will be the story of 2017,” Beck said. “Old-fashioned companies that make things and move them from Point A to Point B will benefit from increased infrastructure spending.” He also expects tax rates to fall and sees financial stocks benefiting from rising interest rates and eased regulations.
Watch out for: “We are overdue” for a recession, Beck said. “Recessions tend to occur during the first year of a presidential term ... While growth has been, charitably, anemic since 2008, we have not experienced a GDP recession.” A strengthening dollar also could create headwinds for exporters.
President, Cornell Capital Management
2017 Dow forecast: 17,652, down 11 percent
2017 Nasdaq forecast: 5,275, down 3 percent
Why the market will fall: “Rising interest rates, a continuing slowdown in China’s economy, the European Union on the rocks, trouble in the Middle East and untried and unproven leadership in the U.S. make this a tough time to own equities,” Hartzell said. “Money will flee to the safety of corporate bonds” as rising interest rates give investors a fairly stable place to park retirement funds.
Watch out for: “The bull on the cover of Time Magazine and predictions of Dow 35,000 on the lips of every talking head on MSNBC,” Hartzell said. “By the time you open your 3rd quarter 2017 statement ... it will be too late to sell at the top of the market, which will have peaked during the 4th quarter 2016.”
Advisor, Dopkins Wealth Management
2017 Dow forecast: 20,925, up 5.5 percent
2017 Nasdaq forecast: 5,792, up 6.5 percent
Why the market will rise: “We always tilt our client portfolios to a heavier weighting of both small-cap and value stocks,” Bohen said. Since 1998, small company stocks have outperformed the S&P 500 13 times. “Emerging markets stocks have lagged the S&P again this past year, but this only improves their expected returns in the future.”
Watch out for: “Many expect to see sweeping changes in Washington in 2017, but we feel that the market has already reacted to those expected changes,” Bohen said. “What hurts investors the most is overreacting to what might happen.”
Managing partner, Sandhill Investment Management
2017 Dow forecast: 20,627, up 4 percent
2017 Nasdaq forecast: 5,656, up 4 percent
Why the market will rise: “With a Republican president, a Republican House and a Republican Senate, a significant reduction in corporate taxes is a big, big deal,” Johnston said. “If there is a holiday for repatriated earnings, that could bring billions of dollars back into this country.”
Watch out for: “The biggest danger is a trade war. There’s been a lot of sabre rattling. The last protectionist president we had was Herbert Hoover, and we know how that ended,” with the country falling into the Great Depression. “We are free trade, and it forces us to be highly competitive.”
Thomas J. Hanlon
Chief operating officer, Courier Capital Corp.
2017 Dow forecast: 21,420, up 8 percent
2017 Nasdaq forecast: 5,874, up 10 percent
Why the market will rise: “We see continued growth in the economy and the markets due to the recent election,” Hanlon said. The prospect of lower taxes and lessened regulation could lead to faster growth for the economy. Reducing corporate taxes could increase earnings by 15 percent or more.
Watch out for: A failure by the Trump administration to lower corporate taxes and taxes on repatriated earnings from foreign operations. “Those fiscal changes are necessary to improve U.S. competitiveness globally and the expectations have clearly been reflected in the markets, so it would be a disappointment to investors if Congress and the new administration fail to accomplish those goals,” Hanlon said.
Anthony J. Ogorek
President, Ogorek Wealth Management
2017 Dow forecast: 21,024, up 6 percent
2017 Nasdaq forecast: 5,874, up 8 percent
Why the market will rise: “It remains to be seen how much of Mr. Trump’s agenda will be implemented, but the markets are taking a positive outlook and ignoring his negative platforms on immigration and tariffs,” Ogorek said. Rising interest rates will cause rotation out of consumer staples and dividend stocks to laggards, such as financial and industrial shares.
Watch out for: Politics and the Tea Party. “The federal budget is still subject to a sequester as well as pay go policies that require offsetting spending cuts for any proposed tax cuts,” Ogorek said. “If they take a stand and stymie Trump’s legislative agenda, the markets could lose momentum.”
Gerald T. Cole
Managing director, Arbor Capital Management
2017 Dow forecast: 22,809, up 15 percent
2017 Nasdaq forecast: 6,526, up 20 percent
Why the market will rise: The Trump administration will bring big changes to Washington, from lower corporate taxes and a pro-business cabinet, to repeal of the Affordable Care Act and changes to trade deals. “We are enthusiastic about the change in direction of economic policy,” Cole said. “Stocks have already started to reflect some of this optimism.”
Watch out for: Rising inflation and interest rates. “Inflationary pressures are likely to build as economic activity accelerates toward the second half of this year,” Cole said. “Interest rates are likely to trend higher along the entire yield curve but will require sustained economic strength before a return to a historically normal relationship to general business conditions.”