With President Trump continuing to make waves in the market and the Federal Reserve holding on interest rate hikes, investors should prepare for changes. Let’s look at whether clients should overweight U.S. allocations and which sectors income-oriented investors should favor.
5 Investment Themes to Consider for 2017 (Forbes, January 30)
As the new year gets underway and predictability is no longer the norm, there may be value in re-assessing portfolios to prepare for the coming months. With Republicans controlling the presidency, House of Representatives and Senate, there may be a pay off in emphasizing U.S. stocks over international stocks. However, understanding how a strong U.S. dollar affects U.S. equities and the potential for global stimulation measures should guide investors in finding the right balance. Income-oriented investors can also look towards bonds “for a dependable and consistent stream of income and principal protection when held to maturity.” Certain types of bonds “can still find a home in most investment portfolios throughout most market cycles.”
3 Reasons Why Dividends Matter (The Motley Fool, February 2)
Understanding why dividends matter can help investors expand their portfolios and create positive returns. The author argues “dividends signal a company’s financial strength and stability” and “are an important tool for promoting discipline and good corporate governance.” Dividends impact the total returns generated by equities and can contribute to long-term wealth creation. They also offer a tax-effective income stream that can be more reliable than other investments.
After Historic Week, Wall Street Looks Ahead (USA Today, January 27)
After the Dow’s historic close above 20,000 investors are looking forward to what is coming next for the stock market. As President Trump continues to sign executive orders and companies report fourth-quarter profits, Wall Street is bracing for the unexpected. President Trump met with executives trying to push his agenda including “dismantling Obamacare and restart talks to build oil pipelines.” Wall Street is only able to wait and see how President Trump’s policy changes get enacted.
Trump’s Presidency ‘Unlikely’ To Be Best for U.S. Stocks Despite Opportunities (Forbes, January 29)
Source ETF, an independent ETF provider, analyzed how the stock market performed under past presidents and what to expect under President Trump. Changes in personal and corporate tax policy would likely “benefit retail, industrials, financial services, and media” sectors more than “autos, real estate, travel and leisure, and healthcare.” There have been opportunities for investors under President Trump, but Source ETF suspects “those patterns will reverse in the coming months…Those seeking US exposure…should favour the Russell 2000 Index and the value parts of the stock market.”
What the Fed Inaction Means for Investors (The Huffington Post, February 2)
Even though the Federal Reserve chose to maintain the current interest rate, investors can expect a hike in the coming months. Traditionally when interest rates rise, the value of bonds fall, with long-term bonds feeling more effects than short-term bonds. Equity markets may also face some obstacles with rising interest rates. “The initial two years of a president’s term has historically seen lower equity returns than the final two years.” Although rising interest rates generally have a negative effect on stocks, certain sectors such as energy and consumer goods may see better returns.
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